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

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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Date
2022-05
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Tilburg University Research Output Collection
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Keywords
Capital structure, Bank regulation, Multinational corporation, Taxation, DEBT, LEVERAGE, SUPERVISION, POLICY, DEREGULATION, CHOICE, EQUITY, SDG 10 - Reduced Inequalities
Citation
Avezum, L, Huizinga, H & Raes, L 2022, 'The impact of bank regulation on firms' capital structure : Evidence from multinationals', Journal of Banking & Finance, vol. 138, 106459. https://doi.org/10.1016/j.jbankfin.2022.106459
URI
https://hdl.handle.net/20.500.14602/77672
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