IDEAS home Printed from https://ideas.repec.org/p/zbw/vfsc17/168229.html
   My bibliography  Save this paper

Schumpeterian Banks: Credit Reallocation and Capital Requirements

Author

Listed:
  • Kogler, Michael
  • Keuschnigg, Christian

Abstract

Capital reallocation from unprofitable to profitable firms is a key source of productivity gain in an innovative economy. We present a model of credit reallocation and focus on the role of banks: Weakly capitalized banks hesitate to write off non-performing loans to avoid a violation of regulatory requirements. This results in insufficient credit reallocation across sectors and a distorted capital allocation. Reducing the cost of equity and tightening capital requirements can mitigate distortions.

Suggested Citation

  • Kogler, Michael & Keuschnigg, Christian, 2017. "Schumpeterian Banks: Credit Reallocation and Capital Requirements," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168229, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc17:168229
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/168229/1/VfS-2017-pid-3323.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
    2. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    3. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    4. Viral V. Acharya & Jean Imbs & Jason Sturgess, 2011. "Finance and Efficiency: Do Bank Branching Regulations Matter?," Review of Finance, European Finance Association, vol. 15(1), pages 135-172.
    5. Marianne Bertrand & Antoinette Schoar & David Thesmar, 2007. "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985," Journal of Finance, American Finance Association, vol. 62(2), pages 597-628, April.
    6. Rafael Repullo & Javier Suarez, 2013. "The Procyclical Effects of Bank Capital Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 452-490.
    7. Inderst, Roman & Mueller, Holger M., 2008. "Bank capital structure and credit decisions," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 295-314, July.
    8. Almeida, Heitor & Wolfenzon, Daniel, 2005. "The effect of external finance on the equilibrium allocation of capital," Journal of Financial Economics, Elsevier, vol. 75(1), pages 133-164, January.
    9. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    10. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    11. Eisfeldt, Andrea L. & Rampini, Adriano A., 2006. "Capital reallocation and liquidity," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 369-399, April.
    12. Mueller, Holger & Giroud, Xavier, 2015. "Capital and Labor Reallocation within Firms," CEPR Discussion Papers 10360, C.E.P.R. Discussion Papers.
    13. Giovanni Dell'Ariccia & Pietro Garibaldi, 2005. "Gross Credit Flows," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 665-685.
    14. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    15. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    16. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 639-670.
    17. Herrera, Ana Maria & Kolar, Marek & Minetti, Raoul, 2011. "Credit reallocation," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 551-563.
    18. Gompers, Paul & Kovner, Anna & Lerner, Josh & Scharfstein, David, 2010. "Performance persistence in entrepreneurship," Journal of Financial Economics, Elsevier, vol. 96(1), pages 18-32, April.
    19. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    20. Xavier Giroud & Holger M. Mueller, 2015. "Capital and Labor Reallocation within Firms," Journal of Finance, American Finance Association, vol. 70(4), pages 1767-1804, August.
    21. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    22. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    23. Vojislav Maksimovic & Gordon Phillips, 2001. "The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?," Journal of Finance, American Finance Association, vol. 56(6), pages 2019-2065, December.
    24. Michelle J. White, 2011. "Corporate and Personal Bankruptcy Law," NBER Working Papers 17237, National Bureau of Economic Research, Inc.
    25. Lucia Foster & John Haltiwanger & C. J. Krizan, 2006. "Market Selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 748-758, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian Keuschnigg & Michael Kogler, 2022. "Trade and credit reallocation: How banks help shape comparative advantage," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 282-305, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keuschnigg, Christian & Kogler, Michael, 2017. "Schumpeterian Banks: Credit Reallocation and Capital Structure," CEPR Discussion Papers 12443, C.E.P.R. Discussion Papers.
    2. Christian Keuschnigg & Michael Kogler, 2022. "Trade and credit reallocation: How banks help shape comparative advantage," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 282-305, February.
    3. Keuschnigg, Christian & Kogler, Michael, 2020. "The Schumpeterian role of banks: Credit reallocation and capital structure," European Economic Review, Elsevier, vol. 121(C).
    4. John (Jianqiu) Bai & Daniel Carvalho & Gordon M. Phillips, 2018. "The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity," Journal of Finance, American Finance Association, vol. 73(6), pages 2787-2836, December.
    5. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    6. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    7. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    8. Korte, Josef, 2015. "Catharsis—The real effects of bank insolvency and resolution," Journal of Financial Stability, Elsevier, vol. 16(C), pages 213-231.
    9. Korte, Josef, 2013. "Catharsis - The real effects of bank insolvency and resolution," Discussion Papers 21/2013, Deutsche Bundesbank.
    10. Trunin, Pavel (Трунин, Павел), 2015. "Analysis of the Level of Development of the Financial System in the Russian Federation [Анализ Уровня Развития Финансовой Системы В Российской Федерации]," Published Papers mn38, Russian Presidential Academy of National Economy and Public Administration.
    11. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
    12. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    13. Bae, Kee-Hong & Bailey, Warren & Kang, Jisok, 2021. "Why is stock market concentration bad for the economy?," Journal of Financial Economics, Elsevier, vol. 140(2), pages 436-459.
    14. Zhang, Jin & Wang, Lanfang & Wang, Susheng, 2012. "Financial development and economic growth: Recent evidence from China," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 393-412.
    15. Papaioannou, Elias, 2007. "Finance and growth: a macroeconomic assessment of the evidence from a European angle," Working Paper Series 787, European Central Bank.
    16. Levine, Oliver & Warusawitharana, Missaka, 2021. "Finance and productivity growth: Firm-level evidence," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 91-107.
    17. Anne C. Maduka & Kevin O. Onwuka, 2013. "Financial Market Structure and Economic Growth: Evidence from Nigeria Data," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(1), pages 75-98, January.
    18. Marc Steffen Rapp & Iuliia A. Udoieva, 2018. "What matters in the finance–growth nexus of advanced economies? Evidence from OECD countries," Applied Economics, Taylor & Francis Journals, vol. 50(6), pages 676-690, February.
    19. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
    20. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Publications - Reports 7765, The World Bank Group.

    More about this item

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc17:168229. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/vfsocea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.