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

Daniel Foos and Bastian von Beschwitz
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Bastian von Beschwitz: https://www.federalreserve.gov/econres/bastian-von-beschwitz.htm

No 1183, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

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.

Keywords: Relationship banking; Ownership; Monitoring (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-10
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1183.pdf (application/pdf)

Related works:
Journal Article: Banks’ equity stakes and lending: Evidence from a tax reform (2018)
Working Paper: Banks' equity stakes and lending: Evidence from a tax reform (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1183

DOI: 10.17016/IFDP.2016.1183

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