Published in:FRB International Finance Discussion Paper ; No. 1183
Extent:
1 Online-Ressource (49 p)
Language:
English
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments 2016-10 erstellt
Description:
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 suggest that the prior evidence cannot be interpreted causally and that banks' equity stakes are immaterial for their lending