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Finance and Efficiency: Do Bank Branching Regulations Matter?

  • Viral V. Acharya
  • Jean Imbs
  • Jason Sturgess

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. The change cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play, which we study in the context of mean-variance portfolio theory applied to sectoral returns. We find the reallocation 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 suggest that improving bank access to branching affects the sectoral specialization of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only. Copyright 2011, Oxford University Press.

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Article provided by European Finance Association in its journal Review of Finance.

Volume (Year): 15 (2011)
Issue (Month): 1 ()
Pages: 135-172

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Handle: RePEc:oup:revfin:v:15:y:2011:i:1:p:135-172
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