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Banks' Equity Stakes and Lending : Evidence from a Tax Reform

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  • Bastian von Beschwitz
  • Daniel Foos

Abstract

Several papers find a positive association between a bank's equity stake in a borrowing firm and lending to that firm. While such a positive cross-sectional correlation may be due to equity stakes benefiting lending, it may also be driven by endogeneity. To distinguish the two, we study a German tax reform that permitted banks to sell their equity stakes tax-free. After the reform, many banks sold their equity stakes, but did not reduce lending to the firms. Thus, our findings suggest that the prior evidence cannot be interpreted causally and that banks? equity stakes are immaterial for their lending.

Suggested Citation

  • Bastian von Beschwitz & Daniel Foos, 2016. "Banks' Equity Stakes and Lending : Evidence from a Tax Reform," International Finance Discussion Papers 1183, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1183
    DOI: 10.17016/IFDP.2016.1183
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    File URL: https://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1183.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bastian von Beschwitz, 2016. "Cash Windfalls and Acquisitions," International Finance Discussion Papers 1159, Board of Governors of the Federal Reserve System (U.S.), revised 02 Mar 2016.
    2. repec:kap:jfsres:v:55:y:2019:i:1:d:10.1007_s10693-017-0277-2 is not listed on IDEAS

    More about this item

    Keywords

    Relationship banking; Ownership; Monitoring;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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