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Finance and Efficiency: Do Bank Branching Regulations Matter?

Review of Finance, Forthcoming

46 Pages Posted: 14 May 2010  

Viral V. Acharya

New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Jean M. Imbs

Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Jason Sturgess

Queen Mary University of London

Multiple version iconThere are 4 versions of this paper

Date Written: February 26, 2010

Abstract

We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. The change cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play, which we study in the context of mean-variance portfolio theory applied to sectoral returns. We find the reallocation is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings suggest that improving bank access to branching affects the sectoral specialization of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.

Keywords: Financial Development, Growth, Volatility, Diversification, Deregulation, Liberalization, Mean-variance Efficiency

JEL Classification: E44, F02, F36, O16, G11, G21, G28

Suggested Citation

Acharya, Viral V. and Imbs, Jean M. and Sturgess, Jason, Finance and Efficiency: Do Bank Branching Regulations Matter? (February 26, 2010). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1604511

Viral Acharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Jean Imbs

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Jason Sturgess (Contact Author)

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, E1 4NS
United Kingdom

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