Bank capital regulation, loan contracts, and corporate investment

Achim Hauck, Diemo Dietrich

Research output: Contribution to journal › Article

2 Citations (Scopus)
16 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)230-241
Number of pages12
JournalQuarterly Review of Economics and Finance
Volume54
Issue number2
Early online date16 Oct 2013
DOIs
Publication statusPublished - 1 May 2014

Fingerprint

Loans
Corporate investment
Bank capital regulation
Assets
Costs
Incentives
Bank capital
Financing
Intermediation
Lower bounds
Bank loans
Firm resources
Credit risk
Capital adequacy

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

Hauck, A & Dietrich, D 2014, 'Bank capital regulation, loan contracts, and corporate investment' Quarterly Review of Economics and Finance, vol. 54, no. 2, pp. 230-241. https://doi.org/10.1016/j.qref.2013.10.005
Hauck A, Dietrich D. Bank capital regulation, loan contracts, and corporate investment. Quarterly Review of Economics and Finance. 2014 May 1;54(2):230-241. https://doi.org/10.1016/j.qref.2013.10.005
Hauck, Achim ; Dietrich, Diemo. / Bank capital regulation, loan contracts, and corporate investment. In: Quarterly Review of Economics and Finance. 2014 ; Vol. 54, No. 2. pp. 230-241.
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