Impact of Universal Banking on Investment Decisions of Bank-Dependent Firms
43 Pages Posted: 3 Jun 2021
Date Written: June 3, 2021
The advantages and disadvantages of universal banking have long been debated. Using the successive granting of lead underwriter qualifications to commercial banks in China as a quasi-natural experiment, we study the impact of universal banking on non-financial firms’ investment decisions. We find that after a firm’s main lending banks qualify as lead underwriters, the firm’s investment increases by 7.7 to 8.3 percent on a gross or net basis. The underlying mechanism is that universal banking can generate informational economies of scope and relax constraints on the provision of external finance. In contrast, we find no evidence on the conflict of interest between universal banks and their customers. Our study, therefore, sheds light on the potential gains from universal banking.
Keywords: Universal banking, Bond underwriting, Corporate investment
JEL Classification: G21, G24, G31
Suggested Citation: Suggested Citation