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Bank Competition and Leverage Adjustments
Author(s) -
Jiang Fuxiu,
Jiang Zhan,
Huang Jicheng,
Kim Kenneth A.,
Nofsinger John R.
Publication year - 2017
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12174
Subject(s) - leverage (statistics) , competition (biology) , business , monetary economics , shock (circulatory) , official cash rate , economics , bank rate , central bank , monetary policy , ecology , medicine , machine learning , computer science , biology
We test whether bank competition affects firms’ leverage adjustment speeds. Using Chinese data where bank concentration varies across both years and provinces, we find that underlevered firms move to their target leverage faster when bank competition is high. Tests surrounding an exogenous shock to bank competition lead to the same conclusion. We also find that small firms and nonstate‐owned firms exhibit faster leverage adjustments when bank competition is high, which is consistent with the conjecture that bank risk taking increases with competition.