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The impact of bank regulation on firms’ capital structure: Evidence from multinationals

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  • Avezum, Lucas
  • Huizinga, Harry
  • Raes, Louis

Abstract

This paper examines how the capital structure of non-financial firms is affected by international variation in bank regulation. A concise model yields an estimating equation that relates a firm's capital structure to bank regulatory variables and their interactions with the tax rate reflecting the tax deductibility of interest. We identify an effect of bank regulation on leverage by considering establishments of the same multinational firm located in different countries. Our results indicate that capital regulation stringency and official supervisory power are negatively related to firm leverage, while restrictions on non-lending activities and on financial conglomerates vary positively with firm leverage. High tax rates mitigate these effects.

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  • Avezum, Lucas & Huizinga, Harry & Raes, Louis, 2022. "The impact of bank regulation on firms’ capital structure: Evidence from multinationals," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426622000590
    DOI: 10.1016/j.jbankfin.2022.106459
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    Cited by:

    1. Gill, Andrej & Heller, David, 2024. "Leveraging intellectual property: The value of harmonized enforcement regimes," Journal of Banking & Finance, Elsevier, vol. 163(C).

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    More about this item

    Keywords

    Capital structure; Bank regulation; Multinational corporation; Taxation;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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