Banking Sector Deregulation, Bank-Firm Relationships and Corporate Leverage

Posted: 28 Jan 2011 Last revised: 12 Oct 2017

See all articles by Fabio Braggion

Fabio Braggion

Tilburg University - Center and Faculty of Economics and Business Administration; Tilburg University - European Banking Center

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: August 16, 2017

Abstract

We study the effects of the 1971 deregulation of UK banking on firms’ financial and investment policies. The deregulation was a turning point in the evolution of firm-bank relationships during the twentieth century. Indeed, for more than 80 years prior to deregulation most firms had had a relationship with only one bank: this was no longer the case from 1971 on. Deregulation and intensifying competition in the banking sector spurred firms — in local markets with many banks already active — to increase leverage and to invest more in research and development. Bank debt similarly expanded while trade credit contracted.

Keywords: banking sector, competition, multiple banking

JEL Classification: G21, N23, N24

Suggested Citation

Braggion, Fabio and Ongena, Steven R. G., Banking Sector Deregulation, Bank-Firm Relationships and Corporate Leverage (August 16, 2017). Available at SSRN: https://ssrn.com/abstract=1749617

Fabio Braggion (Contact Author)

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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