Interstate Banking Deregulation and Bank Loan Commitments

PurposeThis study explores how the firm’s proprietary information has an impact on the bank loan contracts. It explains the propensity of using the competitive bid option (CBO) in the syndicate loans to solicit the best bid for innovative firms and how it changes based on industry competition and the degree of innovations. This research also examines how the interstate banking deregulation (Interstate Banking and Branching Efficiency Act) in 1994 affected the private loan contracts for innovative borrowers.Design/methodology/approachThe study uses various econometric analyses. First, it uses the propensity score matching analysis to see the impact of patents on pricing terms. Second, it uses the two-stage least square (2SLS) analysis by implementing the litigation and non-NYSE variables. Finally, it studies the impact of the policy change of the Interstate Banking and Branching Efficiency Act of 1994 on the bank loan contracts.FindingsFirms with more proprietary information pays more annual facility fees but less other fees. The patents are the primary determinants of the usage of CBO in the syndicate loans to solicit the best bid. While innovative firms can have better contract conditions by the CBO, firms with more proprietary information will less likely to use the CBO option to minimize the leakage of private information and the severe monitoring from the banks. Finally, more proprietary information lowered the loan spread for firms dependent on the external capital after the interstate banking deregulation.Originality/valueThe findings of this research will help senior executives with responsibility for financing their innovative projects. In addition, these findings should prove helpful for the lawmakers to boost economies.

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Bank Geographic Diversification and Corporate Innovation: Evidence from the Lending Channel

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000083 ◽

2020 ◽

pp. 1-32

Author(s):

Saiying Deng ◽

Connie X. Mao ◽

Cong Xia

Keyword(s):

Causal Effect ◽

Economic Value ◽

Operational Flexibility ◽

Geographic Diversification ◽

Banking Deregulation ◽

Lending Channel ◽

Interstate Banking ◽

Model Following ◽

Corporate Innovation ◽

Underlying Mechanisms

By integrating staggered interstate banking deregulation into a gravity model following Goetz, Laeven, and Levine (2013), (2016), we construct a time-varying, bank-specific instrument for geographic diversification and investigate its causal effect on corporate innovation via the lending channel. We find that bank geographic diversification spurs corporate innovation and enhances the economic value of innovation. We identify relaxing debt covenants and alleviating borrowers’ financial constraints as the two underlying mechanisms explaining the documented effects. Moreover, by offering lenient covenants, geographically diversified banks provide greater financial and operational flexibility to borrowing firms, enabling them to engage in future mergers and acquisitions.

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The Impact of Bank Deregulations on Farm Financial Stress and Stability

Sustainability ◽

10.3390/su12041684 ◽

2020 ◽

Vol 12 (4) ◽

pp. 1684

Author(s):

Eric C. Davis ◽

Ani L. Katchova

Keyword(s):

Fixed Effects ◽

De Novo ◽

Financial Stress ◽

Farm Income ◽

Banking Deregulation ◽

Clear Cut ◽

Interstate Banking ◽

Bank Deregulation ◽

The Cost ◽

The Impact

Previous research on bank deregulation has supported the idea that interstate banking deregulation lowered the cost of credit and increased the net farm income. This analysis builds on that base by investigating whether the agricultural loan delinquency volume was also affected. Using a panel data fixed effects approach, deregulation was found to be associated with changes in the volume of delinquencies: interstate banking deregulation reduced the volume of production loan delinquencies, and de novo branching deregulation increased both production and real-estate loan delinquencies. Thus, deregulation’s outcome is not clear cut: interstate banking reduced farm financial stress but de novo deregulation increased it.

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Information Revelation, Lock-In, and Bank Loan Commitments

Journal of Financial Intermediation ◽

10.1006/jfin.1994.1010 ◽

1994 ◽

Vol 3 (4) ◽

pp. 355-378 ◽

Cited By ~ 17

Author(s):

Joel F. Houston ◽

S. Venkataraman

Keyword(s):

Bank Loan ◽

Information Revelation ◽

Loan Commitments ◽

Lock In

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Credit and the Labour Share: Evidence from US States

The Economic Journal ◽

10.1093/ej/ueaa025 ◽

2020 ◽

Vol 130 (630) ◽

pp. 1782-1816 ◽

Cited By ~ 2

Author(s):

Aslı Leblebicioğlu ◽

Ariel Weinberger

Keyword(s):

Financial Development ◽

Financial Frictions ◽

Us States ◽

Banking Deregulation ◽

Interstate Banking ◽

Percentage Points ◽

Labour Share ◽

The Us ◽

The Relationship

Abstract We investigate the role of credit markets as a cause for changes in the US labour share. Causal evidence is provided that the labour share declined between 0.8 and 1.2 percentage points following the interstate banking deregulation, explaining more than half of the overall reduction during that period. The lower costs of credit and greater bank competition in each state are mechanisms that led to the decline. To quantify the relationship between credit and factor payments, we calibrate a model with financial frictions and highlight financial development as a potential channel for the reduction in labour share observed globally.

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Does Local Capital Supply Matter for Public Firms’ Capital Structures?

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109020000423 ◽

2020 ◽

pp. 1-35

Author(s):

Binay K. Adhikari ◽

David C. Cicero ◽

Johan Sulaeman

Keyword(s):

Debt Financing ◽

Bond Markets ◽

Public Firms ◽

Listed Firms ◽

Banking Deregulation ◽

Exogenous Shocks ◽

Interstate Banking ◽

Debt Capital ◽

Local Supply ◽

Crisis Support

Abstract Publicly listed firms respond to capital supply conditions shaped by local investing preferences. Public firms headquartered in areas with higher proportions of senior citizens and women use more debt financing. These demographics are associated with conservative investing, leading to a higher and more stable local supply of debt capital. The demographics–leverage relation is more pronounced for firms that cannot easily tap public bond markets, which is the majority of public firms. Changes in firms’ financing activities around exogenous shocks to credit supplies, including interstate banking deregulation and the 2008–2009 financial crisis, support the local capital supply hypothesis.

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