Abstract
Original language | English |
---|---|
Pages (from-to) | 230-241 |
Number of pages | 12 |
Journal | Quarterly Review of Economics and Finance |
Volume | 54 |
Issue number | 2 |
Early online date | 16 Oct 2013 |
DOIs | |
Publication status | Published - 1 May 2014 |
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Keywords
- Financial contracting
- Corporate investment
- Asset tangibility
- Bank capital regulation
Cite this
Bank capital regulation, loan contracts, and corporate investment. / Hauck, Achim; Dietrich, Diemo.
In: Quarterly Review of Economics and Finance, Vol. 54, No. 2, 01.05.2014, p. 230-241.Research output: Contribution to journal › Article
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TY - JOUR
T1 - Bank capital regulation, loan contracts, and corporate investment
AU - Hauck, Achim
AU - Dietrich, Diemo
PY - 2014/5/1
Y1 - 2014/5/1
N2 - 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.
AB - 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.
KW - Financial contracting
KW - Corporate investment
KW - Asset tangibility
KW - Bank capital regulation
U2 - 10.1016/j.qref.2013.10.005
DO - 10.1016/j.qref.2013.10.005
M3 - Article
VL - 54
SP - 230
EP - 241
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
SN - 1062-9769
IS - 2
ER -