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Published in:

05-03-2022

Bank Risk and Firm Investment: Evidence from Firm-Level Data

Authors: Anastasiya Shamshur, Laurent Weill

Published in: Journal of Financial Services Research | Issue 1/2023

Abstract

Is higher bank risk-taking associated with more firm investment? Combining firm- and bank-level data, we examine the relation between bank risk and firm investment in a large sample of firms from nine European countries. We find that bank risk is positively associated with firm investment. Our finding accords with the modern theory of financial intermediation: risk taking by banks enhances firm investment as banks become more willing to perform their key function in the economy. Additionally, we also find that this positive relation is stronger for financially-constrained firms and when banks are more efficient.

next article Banks’ Net Interest Income from Maturity Transformation and Other Interest Income: Communicating Vessels?

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Among many others, the influence of bank governance and regulation (Laeven and Levine 2009; Körner 2017), bank competition (Berger et al. 2009a, b), creditor rights and information sharing (Houston et al. 2010), executive board composition (Berger et al. 2014), culture (Adhikari and Agrawal 2016) have been studied.

Notably, cooperative banks ‒ financial institutions owned by their clients and not listed ‒ have an important market share in several countries of our sample, which can reach up to 60% in France according to the European Association of Cooperative Banks.

For further details see https://ec.europa.eu/eurostat/web/structural-business-statistics/structural-business-statistics/sme.

We also checked whether bank risk has a differential effect on high-tech vs. traditional industries but do not find a clear difference.

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Title: Bank Risk and Firm Investment: Evidence from Firm-Level Data
Authors: Anastasiya Shamshur
Laurent Weill
Publication date: 05-03-2022
Publisher: Springer US
Published in: Journal of Financial Services Research / Issue 1/2023
Print ISSN: 0920-8550
Electronic ISSN: 1573-0735
DOI: https://doi.org/10.1007/s10693-022-00379-y