The Efficiency of Capital Allocation: Do Bank Regulations Matter?

Viral Acharya, Jean Imbs and Jason Sturgess
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Jason Sturgess: GU - Georgetown University [Washington]

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. The change cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play, which we study in the context of mean-variance portfolio theory applied to sectoral returns. We find the reallocation is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings suggest that improving bank access to branching affects the sectoral specialization of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.

Keywords: Financial development; Growth; Volatility; Diversification; Deregulation; Liberalization; Mean-variance efficiency (search for similar items in EconPapers)
Date: 2011-01
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Published in Review of Finance, 2011, 15 (1), pp.135-172. ⟨10.1093/rof/rfq009⟩

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Working Paper: The Efficiency of Capital Allocation: Do Bank Regulations Matter? (2011)
Working Paper: The Efficiency of Capital Allocation: Do Bank Regulations Matter? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00612321

DOI: 10.1093/rof/rfq009

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