EconPapers    
Economics at your fingertips  
 

Bank capital regulation, loan contracts, and corporate investment

Diemo Dietrich and Achim Hauck ()

The Quarterly Review of Economics and Finance, 2014, vol. 54, issue 2, 230-241

Abstract: This paper studies the link between bank capital regulation, bank loan contracts and the allocation of corporate resources across firms’ different business lines. Credit risk is lower when firms write contracts that oblige them to invest mainly into projects with highly tangible assets. We argue that firms have an incentive to choose a contract with overly safe and thus inefficient investments when intermediation costs are increasing in banks’ capital-to-asset ratio. Imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs.

Keywords: Financial contracting; Corporate investment; Asset tangibility; Bank capital regulation (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976913000781
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Bank Lending, Bank Capital Regulation and Efficiency of Corporate Foreign Investment (2007) Downloads
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:quaeco:v:54:y:2014:i:2:p:230-241

DOI: 10.1016/j.qref.2013.10.005

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-06-07
Handle: RePEc:eee:quaeco:v:54:y:2014:i:2:p:230-241