Bank systemic risk and corporate investment: Evidence from the US
Adachi-Sato, Meg and
International Review of Financial Analysis, 2017, vol. 50, issue C, 151-163
In this paper, we develop a simple two-period model in which a bank’s investment (e.g., loans) is influenced by short-term financing and a probability of a financial crisis. When banks ex ante expect to be bailed out during financial crises, they do not necessarily internalize the cost of financial crises and invest more. We argue that the level of systemic risk in the banking sector is largely driven by (1) the way in which banks finance their investment (e.g., loans) using more short-term debt and/or (2) the increase in asset commonality amongst banks. We use three measures that arguably capture two dimensions of “bank systemic risk”, namely, (1) bank funding maturity and (2) bank asset commonality, to empirically test whether bank systemic risk has a positive effect on corporate investment. We document that in a sample of publicly listed firms in the United States over the period 1991–2013, bank systemic risk is positively associated with the firm-level investment ratio after controlling for a large set of country- and firm-level variables. In addition, we show that a firm's leverage strengthens the positive effect of bank systemic risk on corporate investment, suggesting that more financially constrained firms experience a larger effect of bank systemic risk on corporate investment than less financially constrained firms.
Keywords: Banking system; Bank systemic risk; Corporate investment; Financial crisis; Growth opportunities (search for similar items in EconPapers)
JEL-codes: E22 E44 G1 G21 G31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:50:y:2017:i:c:p:151-163
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