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 - Tilburg University School of Economics and Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; 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 - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Steven R. G. Ongena

University of Zurich - Department 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

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom