Are Bigger Banks Better? Firm-Level Evidence from Germany

75 Pages Posted: 1 Dec 2020 Last revised: 4 Dec 2020

See all articles by Kilian Huber

Kilian Huber

University of Chicago - Booth School of Business

Multiple version iconThere are 4 versions of this paper

Date Written: October 1, 2020

Abstract

The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.

JEL Classification: E24, E44, G21, G28

Suggested Citation

Huber, Kilian, Are Bigger Banks Better? Firm-Level Evidence from Germany (October 1, 2020). Chicago Booth Research Paper No. 20-49, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-172, Available at SSRN: https://ssrn.com/abstract=3737756 or http://dx.doi.org/10.2139/ssrn.3737756

Kilian Huber (Contact Author)

University of Chicago - Booth School of Business ( email )

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