Banking Sector Deregulation, Bank-Firm Relationships and Corporate Leverage
Posted: 28 Jan 2011 Last revised: 12 Oct 2017
Date Written: August 16, 2017
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: Suggested Citation