Bank Integration and the Market for Corporate Control: Evidence from Cross-State Acquisitions

Using the staggered and reciprocal passage of interstate bank deregulation as an exogenous variation in the degree of bank integration, we investigate how and why bank integration influences the market for corporate control for nonfinancial firms. We posit that bank integration affects acquisitions either through reducing the information asymmetry between acquirers and targets or through increasing credit supply. Our evidence is more consistent with the former channel. Specifically, we document that (1) cross-state acquisitions are more likely to occur between reciprocally deregulated states, and (2) firms are more likely taken over by out-of-state acquirers after deregulation; this effect is stronger for a target who borrows from an out-of-state bank, whose local bank is acquired by an out-of-state bank, and who is informationally more opaque. Announcement returns for acquirers of out-of-state (particularly private) targets increase after deregulation, consistent with better identification of higher-valued targets by acquirers after deregulation. This paper was accepted by Tomasz Piskorski, finance.

The Impact of Bank Deregulations on Farm Financial Stress and Stability

Previous research on bank deregulation has supported the idea that interstate banking deregulation lowered the cost of credit and increased the net farm income. This analysis builds on that base by investigating whether the agricultural loan delinquency volume was also affected. Using a panel data fixed effects approach, deregulation was found to be associated with changes in the volume of delinquencies: interstate banking deregulation reduced the volume of production loan delinquencies, and de novo branching deregulation increased both production and real-estate loan delinquencies. Thus, deregulation’s outcome is not clear cut: interstate banking reduced farm financial stress but de novo deregulation increased it.

Bank diversity and SME innovation: evidence from China

Purpose The purpose of this paper is to examine the relationship between bank diversity and small- and medium-sized enterprise (SME) firm innovation in China to evaluate the impact of recent bank deregulation. Design/methodology/approach Using a large data set that includes 8,143 firm-year observations of 1,122 listed SME firms in China and baseline and robustness regression analyses, the authors identify how bank diversity affects firm innovation and via what economic mechanisms. Potential endogeneity problems are considered and addressed in the design and analysis to minimize research bias. Findings The authors find robust evidence that bank diversity improves firm innovation. Specifically, the findings suggest that the positive effects of bank diversity on firm innovation are only significant for the firms which are more external finance dependent, have fewer growth opportunities and/or located in the provinces having low financial market development. Originality/value This study provides novel evidence and insights into the relationship between banking market structure and the determinants of firm innovation in the Chinese context, as a result of China’s banking deregulation.