Bank capital regulation, loan contracts, and corporate investment

Dietrich, D. and Hauck, A. ORCID: 0000-0002-6949-6732, 2014. Bank capital regulation, loan contracts, and corporate investment. The Quarterly Review of Economics and Finance, 54 (2), pp. 230-241. ISSN 1062-9769

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Abstract

This paper studies the link between bank capital regulation, bank loan contracts and the allocation of corporate resources across firms’ different business lines. Credit risk is lower when firms write contracts that oblige them to invest mainly into projects with highly tangible assets. We argue that firms have an incentive to choose a contract with overly safe and thus inefficient investments when intermediation costs are increasing in banks’ capital-to-asset ratio. Imposing minimum capital adequacy for banks can eliminate this incentive by putting a lower bound on financing costs.

Item Type: Journal article
Publication Title: The Quarterly Review of Economics and Finance
Creators: Dietrich, D. and Hauck, A.
Publisher: Elsevier
Date: 2014
Volume: 54
Number: 2
ISSN: 1062-9769
Identifiers:
NumberType
10.1016/j.qref.2013.10.005DOI
S1062976913000781Publisher Item Identifier
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 22 Feb 2019 09:20
Last Modified: 22 Feb 2019 09:20
URI: http://irep.ntu.ac.uk/id/eprint/35792

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