Bank capital pressures, loan substitutability, and nonfinancial employment

Seung Jung Lee and Viktors Stebunovs

Journal of Economics and Business, 2016, vol. 83, issue C, 44-69

Abstract: We exploit the cross-state, cross-time variation in bank tangible capital ratios—brought about by bank branch deregulation on a state-by-state basis—to identify the effects of bank capital pressures on employment and firm dynamics during two waves of changes in bank capital regulation. We show that stronger capital pressures temporarily slowed down growth in employment in industries that depend on external finance, retarding growth in the average size of firms rather than in the number of firms. Such effects were particularly strong for smaller firms that may not have had access to national capital and bank loan markets. Our findings indicate that a tightening of capital requirements may have significant real effects, in part because of the lack of substitutes for bank loans.

Keywords: Bank capital ratios; Bank capital regulation; Loan substitutability; Employment; Firm dynamics (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 J20 L25 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619515000636
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Bank Capital Pressures, Loan Substitutability, and Nonfinancial Employment (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:83:y:2016:i:c:p:44-69

DOI: 10.1016/j.jeconbus.2015.11.002

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().