Spare Tire? Stock Markets, Banking Crises, and Economic Recoveries

65 Pages Posted: 12 Jan 2015 Last revised: 4 Mar 2018

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Multiple version iconThere are 2 versions of this paper

Date Written: November 11, 2015

Abstract

Do stock markets act as a spare tire during banking crises, providing an alternative corporate financing channel and mitigating the economic severity of these crises? Using firm-level data in 36 countries from 1990 through 2011, we find that the adverse consequences of banking crises on equity issuances, firm profitability, employment, and investment efficiency are smaller in countries with stronger shareholder protection laws. These findings are not explained by the development of stock markets or financial institutions prior to the crises, the severity of the banking crisis, or overall economic, legal, and institutional development.

Keywords: Shareholder protection laws, Corporate finance, Financial crises, Firm profits, Firm investment choices

JEL Classification: G32, G21, K22, D21

Suggested Citation

Levine, Ross Eric and Lin, Chen and Xie, Wensi, Spare Tire? Stock Markets, Banking Crises, and Economic Recoveries (November 11, 2015). Journal of Financial Economics (JFE), Vol. 120, No. 1, 2016. Available at SSRN: https://ssrn.com/abstract=2548282 or http://dx.doi.org/10.2139/ssrn.2548282

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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