Bank Entry Barriers and Firms’ Risk Taking

51 Pages Posted: 16 Jul 2018 Last revised: 16 Sep 2021

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Mahsa Kaviani

University of Delaware

Hosein Maleki

Florida State University - College of Business

Date Written: May 15, 2021

Abstract

We study how out-of-state bank entry affects non-financial firms’ risk taking. By exploiting staggered regulatory reforms across U.S. states that allowed interstate banking and branching, we show that higher out-of-state bank entry significantly reduced borrowers’ risk taking. After large banks’ entry, firms located in deregulated states increased capital expenditures and maintained stable R&D expenses but reduced R&D risk. The risk-taking decline was concentrated in operating accruals. Easier bank entry lowered borrowers’ risk taking by (1) eroding borrowers’ ability to commit to long-term relationships with incumbent banks, and (2) increasing the availability of cheap credit from new entrants.

Keywords: barriers to entry, bank competition, corporate risk taking, investment

JEL Classification: G28, G32, G21

Suggested Citation

Basu, Sudipta and Kaviani, Mahsa and Maleki, Hosein, Bank Entry Barriers and Firms’ Risk Taking (May 15, 2021). Fox School of Business Research Paper No. 17-024, Available at SSRN: https://ssrn.com/abstract=3002895 or http://dx.doi.org/10.2139/ssrn.3002895

Sudipta Basu

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Mahsa Kaviani

University of Delaware ( email )

20 Orchard Rd, Newark, DE
Newark, DE 19716
United States

Hosein Maleki (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

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