Finance and Efficiency: Do Bank Branching Regulations Matter?

56 Pages Posted: 1 Dec 2006 Last revised: 14 Mar 2012

See all articles by Viral V. Acharya

Viral V. Acharya

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Jean M. Imbs

Paris School of Economics (PSE); NYU Abu Dhabi; Centre for Economic Policy Research (CEPR)

Jason Sturgess

Queen Mary University of London

Multiple version iconThere are 4 versions of this paper

Date Written: April 3, 2009

Abstract

We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. This change in state-level volatility cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play. To study this effect, we invoke a benchmark allocation based on mean-variance portfolio theory applied to sectoral returns. We find that the realized sectoral allocation of output at the state-level converges towards this benchmark allocation, at a rate that is hastened following the deregulation. This partly occurs because sectors with zero weight in the benchmark allocation see their share of total output shrink. We show convergence is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings are robust to the endogeneity of deregulation dates. They suggest that improving bank access to branching affects the sectoral specialization (or diversification) of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.

Keywords: Financial development, Growth, Sharpe ratio, Volatility, Diversification

JEL Classification: E44, F02, F36, O16, G11, G21, G28

Suggested Citation

Acharya, Viral V. and Imbs, Jean M. and Sturgess, Jason, Finance and Efficiency: Do Bank Branching Regulations Matter? (April 3, 2009). Swiss Finance Institute Research Paper No. 06-36, EFA 2007 Ljubljana Meetings Paper, Available at SSRN: https://ssrn.com/abstract=947631 or http://dx.doi.org/10.2139/ssrn.947631

Viral V. Acharya (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jean M. Imbs

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

NYU Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jason Sturgess

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

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