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Winners and losers from supervisory enforcement actions against banks

Raluca A. Roman

Journal of Corporate Finance, 2020, vol. 60, issue C

Abstract: We investigate how supervisory enforcement actions (EAs) against banks affect their business borrowers. We find negative short-term valuation effects of EAs for large relationship borrowers, which are reversed after new loans are granted. Large non-relationship borrowers' valuations are unaffected by EAs, but turn negative after relationships are established with sanctioned banks. Additionally, sanctioned banks appear to offset uncertainty and reputational damage of EAs by improving credit terms and availability for relationship and non-relationship large businesses, but decrease credit availability to small businesses. The small business credit contraction may have significant negative economic consequences due to bank dependency and credit constraints.

Keywords: Enforcement actions; Bank lending; Financial contracting; Financial constraints; Small businesses (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 K42 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:60:y:2020:i:c:s0929119918308216

DOI: 10.1016/j.jcorpfin.2019.101516

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