The Firm-Level Real Effects of Bank-Scope Deregulation: Evidence from the Rise of Universal Banking

52 Pages Posted: 20 Jul 2014 Last revised: 29 Oct 2014

See all articles by Daniel Neuhann

Daniel Neuhann

University of Texas at Austin, McCombs School of Business

Farzad Saidi

Swedish House of Finance; Centre for Economic Policy Research (CEPR)

Date Written: October 28, 2014

Abstract

Are banks of wide scope better intermediaries? Using the variation in bank scope generated by the stepwise repeal of the Glass-Steagall Act in the U.S. and the subsequent rise of universal banking, we provide evidence that economies of scope in concurrent lending and underwriting improve the access to finance for risky ventures of publicly traded companies. Exploiting a bank-level deregulatory shock, as well as detailed data on bank-firm interactions, we identify increases in sales-growth, stock-return, and option-implied volatilities for universal-bank-financed firms. These firms also exhibit lasting increases in total factor productivity of 3 to 4%, echoed by similar findings for increases of 6 to 7% in capital expenditure and 5 to 9% in market capitalization. Our findings suggest that the facilitation of cross-selling of loans and non-loan products through bank-scope deregulation may have led to an increase in the supply of credit for firms making risky, productivity-increasing investments.

Keywords: universal banking, firm volatility, financial deregulation, bank scope, firewalls, loans, underwriting

JEL Classification: E20, G20, G21

Suggested Citation

Neuhann, Daniel and Saidi, Farzad, The Firm-Level Real Effects of Bank-Scope Deregulation: Evidence from the Rise of Universal Banking (October 28, 2014). Available at SSRN: https://ssrn.com/abstract=2468269 or http://dx.doi.org/10.2139/ssrn.2468269

Daniel Neuhann

University of Texas at Austin, McCombs School of Business ( email )

Austin, TX 78701
United States

Farzad Saidi (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
131
rank
214,230
Abstract Views
640
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information