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Banking Sector Deregulation, Bank–Firm Relationships and Corporate Leverage

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  • Fabio Braggion
  • Steven Ongena

Abstract

We study the effects of the 1971 deregulation of uk banking on firms’ financial and investment policies. The deregulation was a turning point in the evolution of firm–bank relationships during the twentieth century. Indeed, for more than 80 years prior to deregulation, most firms had had a relationship with only one bank: this was no longer the case from 1971 on. Deregulation and intensifying competition in the banking sector spurred firms – in local markets with many banks already active – to increase leverage and to invest more in research and development. Bank debt similarly expanded, while trade credit contracted.

Suggested Citation

  • Fabio Braggion & Steven Ongena, 2019. "Banking Sector Deregulation, Bank–Firm Relationships and Corporate Leverage," The Economic Journal, Royal Economic Society, vol. 129(618), pages 765-789.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:618:p:765-789.
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    File URL: http://hdl.handle.net/10.1111/ecoj.12569
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    Cited by:

    1. Canta, Chiara & Nilsen, Øivind A. & Ulsaker, Simen A., 2023. "Competition and risk taking in local bank markets: Evidence from the business loans segment," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 153-169.
    2. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    3. Zhang, Xiaoqian & Huang, Bin, 2022. "Does bank competition inhibit the formation of zombie firms?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1045-1060.
    4. Hu, Yichuan & Li, Chang & Qin, Cong, 2020. "The impact of regional financial depth on outbound cross-border mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 104(C).
    5. Jin, Ming & Liu, Jinshan & Chen, Zhongfei, 2022. "Impacts of social trust on corporate leverage: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 505-521.

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