Who Wins and Who Loses from Bank Geographic Deregulation? Analysis of Financially Constrained and Unconstrained Firms
55 Pages Posted: 12 Jun 2018 Last revised: 29 Oct 2020
Date Written: March 5, 2019
A key issue in the finance-growth nexus literature is endogeneity – economic growth may drive finance as well as finance driving growth. Some research addresses endogeneity using relatively exogenous shocks from U.S. bank geographic deregulation, often documenting favorable economic effects. We connect deregulation shocks for the first time to individual firm growth in a model that differentiates sources of external financing – short-term debt, long-term debt, and equity. Our results suggest that deregulation increases firm growth overall and this growth is fueled by all three external funding sources. However, benefits accrue only to relatively financially unconstrained firms, while relatively constrained firms lose.
Keywords: Bank Deregulation, Economic Growth, Financial Constraints, Large Firms, Small Firms
JEL Classification: G28, G32, D92
Suggested Citation: Suggested Citation