Bank Deregulation and Stock Price Crash Risk

74 Pages Posted: 6 Mar 2020 Last revised: 26 Mar 2020

See all articles by Viet Anh Dang

Viet Anh Dang

Alliance Manchester Business School

Edward Lee

University of Manchester - Alliance Manchester Business School

Yangke Liu

Queen's Management School

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: March 1, 2020

Abstract

This paper examines the relation between bank branch deregulation and corporate borrowers’ stock price crash risk. Using a large sample of U.S. public firms over the period 1962-2001, we provide robust evidence that intrastate branch reform reduces firms’ stock price crash risk. Our finding is consistent with the notion that branch reform improves banks’ monitoring efficiency, thus allowing them to better constrain borrowing firms’ bad-news-hoarding behavior. Further analysis shows that the negative relation between bank branch deregulation and stock price crash risk is more pronounced among firms that are more dependent on external finance and lending relationships. Overall, our results suggest that, as a reform aimed at removing restrictions on bank branch expansion, bank deregulation also helps protect shareholders’ wealth.

Keywords: Bank Deregulation, Stock Price Crash Risk, Monitoring, External Financial Dependence, Lending Relationships

JEL Classification: G3, G20, G14

Suggested Citation

Dang, Viet Anh and Lee, Edward and Liu, Yangke and Zeng, Cheng, Bank Deregulation and Stock Price Crash Risk (March 1, 2020). Available at SSRN: https://ssrn.com/abstract=3537382 or http://dx.doi.org/10.2139/ssrn.3537382

Viet Anh Dang

Alliance Manchester Business School ( email )

AMBS Crawford House
Booth Street West
Manchester, Greater Manchester M15 6PB
United Kingdom
+44(0)16127 50438 (Phone)

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

Yangke Liu (Contact Author)

Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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