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Supervisory arbitrage and real effects

Author

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  • Beck, Thorsten
  • Silva-Buston, Consuelo
  • Wagner, Wolf

Abstract

We examine the effects of cross-border supervisory arbitrage on corporate lending and firm performance. We show that subsidiaries of banking groups improve loan conditions for firms when the group’s opportunities to take risks in other countries are curbed. The expansion in lending is targeted towards firms of higher quality and firms that the group is already familiar with. The improved lending conditions have positive real effects, allowing recipient firms to increase capital spending and leading to higher profits. Taken together, our results suggest that there can be benefits for firms in countries that receive lending inflows due to the supervisory arbitrage.

Suggested Citation

  • Beck, Thorsten & Silva-Buston, Consuelo & Wagner, Wolf, 2025. "Supervisory arbitrage and real effects," Journal of Corporate Finance, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:corfin:v:95:y:2025:i:c:s0929119925001294
    DOI: 10.1016/j.jcorpfin.2025.102861
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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