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Changes in the Cost of Bank Equity and the Supply of Bank Credit


Célérier, Claire; Kick, Thomas; Ongena, Steven (2018). Changes in the Cost of Bank Equity and the Supply of Bank Credit. In: Mayer, Colin; Micossi, Stefano; Onado, Marco; Pagano, Marco; Polo, Andrea. Finance and investment : the European case. Oxford: Oxford University Press, 169-179.

Abstract

This paper shows that both bank balance sheet composition and credit supply significantly respond to a decrease in the relative cost of bank equity. To do so, we exploit the staggered introduction of tax reforms in Europe from 2000 to 2012 as exogenous sources of changes in the cost of equity. We investigate the effect on credit supply using loan level data in a country where firms are not affected by these reforms, and where foreign banks affected by the reforms are lending actively: Germany. We find that the relative decrease in the cost of equity leads banks to rely more on equity financing and to increase lending to firms, while decreasing security and interbank asset holdings. Overall, our paper shows that taxation can be an effective tool to monitor bank leverage and credit supply.

Abstract

This paper shows that both bank balance sheet composition and credit supply significantly respond to a decrease in the relative cost of bank equity. To do so, we exploit the staggered introduction of tax reforms in Europe from 2000 to 2012 as exogenous sources of changes in the cost of equity. We investigate the effect on credit supply using loan level data in a country where firms are not affected by these reforms, and where foreign banks affected by the reforms are lending actively: Germany. We find that the relative decrease in the cost of equity leads banks to rely more on equity financing and to increase lending to firms, while decreasing security and interbank asset holdings. Overall, our paper shows that taxation can be an effective tool to monitor bank leverage and credit supply.

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Additional indexing

Item Type:Book Section, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Economics, Econometrics and Finance
Social Sciences & Humanities > General Business, Management and Accounting
Language:English
Date:2018
Deposited On:12 Sep 2018 14:14
Last Modified:04 Jun 2020 12:50
Publisher:Oxford University Press
ISBN:978-0-19-881582-2
OA Status:Green
Publisher DOI:https://doi.org/10.1093/oso/9780198815815.003.0010
Related URLs:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2829326 (Organisation)
https://www.recherche-portal.ch/primo-explore/fulldisplay?docid=ebi01_prod011162499&context=L&vid=ZAD&search_scope=default_scope&tab=default_tab&lang=de_DE (Library Catalogue)
Other Identification Number:merlin-id:15638

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