Bank Capital Ratios and the Structure of Nonfinancial Industries

46 Pages Posted: 11 Dec 2011

See all articles by Seung Jung Lee

Seung Jung Lee

Board of Governors of the Federal Reserve System

Viktors Stebunovs

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: December 9, 2011

Abstract

We exploit variation in commercial bank capital ratios across states to identify the impact of higher capital ratios on the creation and size of manufacturing firms. For industries dependent on external finance, we find that an increase in the capital ratio has no statistically significant effect on net firm creation, but has an economically significant impact on average firm size, as measured in the number of employees. The number of firms might not necessarily decline as displaced workers may incorporate new businesses cheaply. Our results highlight the potential effects that tightening capital adequacy standards, such as Basel III, may have on firm dynamics.

Keywords: bank capital ratios, bank capital regulation, non-financial firm dynamics

JEL Classification: G21, G28, G30, J20, L25

Suggested Citation

Lee, Seung Jung and Stebunovs, Viktors, Bank Capital Ratios and the Structure of Nonfinancial Industries (December 9, 2011). Available at SSRN: https://ssrn.com/abstract=1970447 or http://dx.doi.org/10.2139/ssrn.1970447

Seung Jung Lee

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Viktors Stebunovs (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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