Working Paper: CEPR ID: DP9695
Authors: Fabio Braggion; Steven Ongena
Abstract: We study how firm-bank relationships and corporate financing evolved during the Twentieth century in Britain. We document a remarkable transition from single to multiple relationships. Transparent, larger, and global companies were more likely to add a bank, especially when located in more competitive local banking markets. Deregulation and intensifying competition in the banking sector during the 1970s spurred banks to supply credit through multilateral arrangements. Firms that added a bank following deregulation borrowed more than similar firms that did not add a bank, and their bank debt expanded while their trade credit and share issuance contracted.
Keywords: banking sector; competition; multiple banking
JEL Codes: G21; N23; N24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Banking sector deregulation (G28) | Increase in corporate leverage (G32) |
| Banking sector deregulation (G28) | Increase in bank debt usage (G21) |
| Banking sector deregulation (G28) | Decrease in trade credit to total debt ratio (G32) |
| Adding banks (G21) | Increase in leverage (G32) |
| Adding banks (G21) | Increase in bank debt (G21) |
| Adding banks (G21) | Decrease in trade credit to total debt ratio (G32) |
| Competitive dynamics in banking sector post-deregulation (G21) | Increased corporate leverage (G32) |
| Competitive dynamics in banking sector post-deregulation (G21) | Increased bank debt usage (G21) |