Bank Competition and Leverage Adjustments. Issue 4 (23rd March 2017)

• Record Type: Journal Article
• Authors: Jiang, Fuxiu; Jiang, Zhan; Huang, Jicheng; Kim, Kenneth A.; Nofsinger, John R.
• Is Part Of: Financial management. Volume 46:Issue 4(2017:Winter)
• Page Start: 995
• Page End: 1022
• Publication Date: 2017-03-23
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12174
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: 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.