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Banks' Equity Stakes and Lending: Evidence from a Tax Reform

Bastian von Beschwitz and Daniel Foos ()

No 1183, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Several papers find a positive association between a bank's equity stake in a borrowing firm and lending to that firm. While such a positive cross-sectional correlation may be due to equity stakes benefiting lending, it may also be driven by endogeneity. To distinguish the two, we study a German tax reform that permitted banks to sell their equity stakes tax-free. After the reform, many banks sold their equity stakes, but did not reduce lending to the firms. Thus, our findings suggest that the prior evidence cannot be interpreted causally and that banks? equity stakes are immaterial for their lending.

Keywords: Relationship banking; Ownership; Monitoring (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-10
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-pbe
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https://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1183.pdf (application/pdf)

Related works:
Journal Article: Banks’ equity stakes and lending: Evidence from a tax reform (2018) Downloads
Working Paper: Banks' equity stakes and lending: Evidence from a tax reform (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1183

DOI: 10.17016/IFDP.2016.1183

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