Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985
This Paper empirically investigates the impact of distortions in the banking sector on the structure and dynamics of product markets as well as on firm level outcomes. Our analysis suggests that an increase in the efficiency of the banking industry can have first-order effects not only on the lending relationship between banks and firms, but also on the structure and dynamics of product markets overall. The particular reform we consider is the deregulation of the French banking industry in the mid 1980s. This deregulation eliminated government interference in bank lending decisions and allowed French banks to compete more freely in the credit market. Post deregulation, we find that banks are less willing to bail out poorly performing firms and that these firms experience a steeper increase in the cost of capital. Subsequently, firms in the more bank-dependent industries have a somewhat higher propensity to undertake restructuring measures. At the industry-level, we observe an increase in asset and job reallocation in the bank dependent sectors, mostly due to higher entry and exit rates of firms. We also find an improvement in allocative efficiency across firms as well as a decline in industry concentration ratios. Overall, these findings are consistent with a model where distortions in bank lending create artificial barriers to entry in the real sectors of the economy. A more efficient banking sector therefore appears to play an important role in fostering a Schumpeterian process of ‘creative destruction’.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Jul 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4488. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.