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Interbank market integration, loan rates, and firm leverage


Ongena, Steven; Popov, Alexander (2011). Interbank market integration, loan rates, and firm leverage. Journal of Banking and Finance, 35(3):544-559.

Abstract

This paper investigates the effect of interbank market integration on small firm finance in the build-up to the 2007–2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.

Abstract

This paper investigates the effect of interbank market integration on small firm finance in the build-up to the 2007–2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.

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Additional indexing

Item Type:Journal Article, 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 > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:March 2011
Deposited On:24 Nov 2020 14:34
Last Modified:25 Nov 2020 21:01
Publisher:Elsevier
ISSN:0378-4266
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jbankfin.2010.08.011
Official URL:http://www.sciencedirect.com/science/article/pii/S0378426610003122
Other Identification Number:merlin-id:11776

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