Banks' equity stakes and lending: Evidence from a tax reform

Bastian von Beschwitz and Daniel Foos

No 06/2018, Discussion Papers from Deutsche Bundesbank

Abstract: Several papers find a positive association between a bank's equity stake in a borrowing firm and lending to that firm. While such a positive cross-sectional correlation may be due to equity stakes benefiting lending, it may also be driven by endogeneity. To distinguish the two, we study a German tax reform that permitted banks to sell their equity stakes tax-free. After the reform, many banks sold their equity stakes, but did not reduce lending to the firms. Thus, our findings question whether prior evidence can be interpreted causally and suggest that banks' equity stakes may be less important for lending than previously thought.

Keywords: Relationship banking; Ownership; Monitoring (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/177833/1/1019302151.pdf (application/pdf)

Related works:
Journal Article: Banks’ equity stakes and lending: Evidence from a tax reform (2018)
Working Paper: Banks' Equity Stakes and Lending: Evidence from a Tax Reform (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:062018

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