Bank Equity Value and Loan Supply

Mattia Girotti and Guillaume Horny

Working papers from Banque de France

Abstract: We study how bank equity values affect loan supply. We exploit granular balance sheet information on euro area banks matched with financial market data. We address endogeneity concerns by instrumenting bank stock prices with a shifter derived from each bank stock price's sensitivity to non-financial corporations' equity values. Our results indicate that, other things equal, rises in bank stock prices cause increases in corporate and household lending, and in bank capitalization. We interpret these results as due to bank managers reading the rises in their bank's stock price as reductions in their bank's cost of equity.

Keywords: Banks; Stock Prices; Loan Supply; Equity Funding. (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:767

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