Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985

We investigate how the deregulation of the French banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets. Following deregulation, banks are less willing to bail out poorly performing firms and firms in the more bank-dependent sectors are m...

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Bibliographic Details
Published in:The Journal of finance (New York) 2007-04, Vol.62 (2), p.597-628
Main Authors: BERTRAND, MARIANNE, SCHOAR, ANTOINETTE, THESMAR, DAVID
Format: Article
Language:English
Subjects:
Bailouts
Bank capital
Bank credit
Bank loans
Bank management
Bank regulation
Banking industry
Banking reforms
Banking system
Capital structure
Debt
Deregulation
Economic impact analysis
Financial economics
France
Industrial market
Industrial sectors
Industrial structure
Loans
Studies
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Summary:We investigate how the deregulation of the French banking industry in the 1980s affected the real behavior of firms and the structure and dynamics of product markets. Following deregulation, banks are less willing to bail out poorly performing firms and firms in the more bank-dependent sectors are more likely to undertake restructuring activities. At the industry level, we observe an increase in asset and job reallocation, an improvement in allocative efficiency across firms, and a decline in concentration. Overall, these findings support the view that a more efficient banking sector helps foster a Schumpeterian process of "creative destruction."
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2007.01218.x