Banking Sector Deregulation, Bank–Firm Relationships and Corporate Leverage

Fabio Braggion and Steven Ongena

The Economic Journal, 2019, vol. 129, issue 618, 765-789

Abstract: We study the effects of the 1971 deregulation of uk banking on firms’ financial and investment policies. The deregulation was a turning point in the evolution of firm–bank relationships during the twentieth century. Indeed, for more than 80 years prior to deregulation, most firms had had a relationship with only one bank: this was no longer the case from 1971 on. Deregulation and intensifying competition in the banking sector spurred firms – in local markets with many banks already active – to increase leverage and to invest more in research and development. Bank debt similarly expanded, while trade credit contracted.

Date: 2019
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