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Banking Market Structure, Liquidity Needs, and Industrial Growth Volatility

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  • Ho-Chuan Huang

    (Tamkang University)

  • WenShwo Fang

    (Feng Chia University)

  • Stephen M. Miller

    (University of Nevada, Las Vegas and University of Connecticut)

Abstract

While the existing literature acknowledges the effect of banking structure on industrial growth as well as the effect of financial development on industrial growth and its volatility, we examine whether banking structure, given bank (financial) development, exerts any nontrivial effect on industrial growth volatility. We show that bank concentration magnifies industrial growth volatility, but reduces the volatility in sectors with higher external liquidity needs. The reduction in industrial growth volatility mostly reflects the smoothing in the variance of real value added per firm growth. Finally a variety of sensitivity checks show that our findings remain for different model specifications, banking market structure measures, liquidity needs indicators, and omitted variables. JEL Classification: G2, O16, E32 Key words: Bank Concentration, External Liquidity, Bank Development, Industrial Growth Volatility

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2012-26.

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Length: 33 pages
Date of creation: Sep 2012
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Publication status: Forthcoming in Journal of Empirical Finance
Handle: RePEc:uct:uconnp:2012-26

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