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Who needs big banks? The real effects of bank size on outcomes of large US borrowers

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  • Biswas, Swarnava (Sonny)
  • Gómez, Fabiana
  • Zhai, Wei

Abstract

We examine how bank size affects borrowers, when information asymmetry is not particularly severe. Our sample comprises 20,806 loan facilities granted to 3625 US public firms. After minimizing endogeneity concerns, we find that there is a positive relation between bank size and firm value, after the origination of the loan. Firms that borrow from large banks invest more, grow faster and have higher risk, proxied by earnings volatility. The effects are concentrated in borrowers which are ex-ante (pre-loan) safer (low leverage or high Z-score) and muted, but not negative, in riskier firms. We highlight the bright side of large banks.

Suggested Citation

  • Biswas, Swarnava (Sonny) & Gómez, Fabiana & Zhai, Wei, 2017. "Who needs big banks? The real effects of bank size on outcomes of large US borrowers," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 170-185.
    • Handle: RePEc:eee:corfin:v:46:y:2017:i:c:p:170-185
    DOI: 10.1016/j.jcorpfin.2017.06.012
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    Cited by:

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    3. Jens Hagendorff & Nhan Le & Duc Duy Nguyen, 2022. "The Walls Have Ears: Local Information Environments and Corporate Fraud," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(8), pages 2377-2410, December.
    4. Biswas, Sonny & Zhai, Wei, 2021. "Economic policy uncertainty and cross-border lending," Journal of Corporate Finance, Elsevier, vol. 67(C).
    5. Naseem Ashraf & Qurra Tul Ain Butt, 2017. "Examining the contributing factors of bank profitability in south Asian countries: A case of Pakistani banking sector," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(5), pages 01-12, July.
    6. Mi, Biao & Zhang, Luqiao & Han, Liang & Shen, Yun, 2024. "Bank market power and financial reporting quality," Journal of Corporate Finance, Elsevier, vol. 84(C).
    7. Segev, Nimrod & Schaffer, Matthew, 2020. "Monetary policy, bank competition and regional credit cycles: Evidence from a quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Firm value; Corporate investment; Scale effects; Too-big-to-fail subsidy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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