Are bigger banks better? Firm-level evidence from Germany

Kilian Maria Huber

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.

Keywords: bank regulation; big banks; bank size; economic growth; brexit; economic geography; employment; globalisation; productivity; technological change; The research was funded by grants from the Centre for Economic Performance; Centre for Macroeconomics; LSE Institute of Global Affairs; Paul Woolley Centre; Sticerd; and Stiftung Familienunternehmen. (search for similar items in EconPapers)
JEL-codes: E24 E44 G21 G28 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2020-12-09
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