Bank Ownership and Margins of Trade

Pavel Chakraborty

No 282850537, Working Papers from Lancaster University Management School, Economics Department

Abstract: Does a bank's ownership matter for a firm's performance (to which it is connected)? Especially, in the event of a crisis? I study this question through the effect of 2008-09 crisis to provide evidence on a new channel which matters significantly for a firm's export performance - bank ownership. In particular, I find: (a) firms connected to private and/or foreign banks earn around 7.7- 39% less in terms of their export earnings during the crisis as compared to firms' having banking relationships with public-sector banks. This happened as the public-sector banks were differentially treated by the Central Bank of India during the crisis due to a clause in the Indian Banking Act of 1969; (b) effect is concentrated only on the intensive margin of trade; (c) drop in exports is driven by firms' client to big domestic-private banks and banks of US origin; (d) firms not connected to public-sector banks also laid-o¤ workers (both managers and non-managers), employed less capital and imported less raw materials. In addition, I also find that firms with lower average product of capital (than the median) received about 50% more loans from the public-sector sources, suggesting a significant reinforcement of inefficiency in the Indian economy due to misallocation of credit.

Keywords: Bank Ownership; 2008-09 Financial Crisis; Public-sector Banks; Private and/or Foreign Banks; Exports (search for similar items in EconPapers)
JEL-codes: F14 F41 G21 G28 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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