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Banks' equity stakes and lending: Evidence from a tax reform

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  • von Beschwitz, Bastian
  • Foos, Daniel

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 question whether prior evidence can be interpreted causally and suggest that banks' equity stakes may be less important for lending than previously thought.

Suggested Citation

  • von Beschwitz, Bastian & Foos, Daniel, 2018. "Banks' equity stakes and lending: Evidence from a tax reform," Discussion Papers 06/2018, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:062018
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    Cited by:

    1. George Pennacchi, 2019. "Banks, Taxes, and Nonbank Competition," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(1), pages 1-30, February.
    2. Bastian von Beschwitz, 2016. "Cash Windfalls and Acquisitions," International Finance Discussion Papers 1159, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Relationship banking; Ownership; Monitoring;
    All these keywords.

    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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