Impact of Universal Banking on Investment Decisions of Bank-Dependent Firms

43 Pages Posted: 3 Jun 2021

See all articles by Xiaoling Liu

Xiaoling Liu

Xiamen University

Shusen Qi

Xiamen University - School of Management

Yuhui Wu

Xiamen University

Date Written: June 3, 2021

Abstract

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

Liu, Xiaoling and Qi, Shusen and Wu, Yuhui, Impact of Universal Banking on Investment Decisions of Bank-Dependent Firms (June 3, 2021). Available at SSRN: https://ssrn.com/abstract=3859082 or http://dx.doi.org/10.2139/ssrn.3859082

Xiaoling Liu

Xiamen University ( email )

Xiamen, Fujian 361005
China

Shusen Qi (Contact Author)

Xiamen University - School of Management ( email )

No.422 Siming South Road
Xiamen, Fujian 361005
China

Yuhui Wu

Xiamen University ( email )

Xiamen, Fujian 361005
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
322
Rank
504,040
PlumX Metrics