Firm Volatility and Banks: Evidence from U.S. Banking Deregulation


  • Finance and Economics Discussion Series


  • This paper exploits the staggered timing of state-level banking deregulation in the United States during the 1980s to study the causal effect of banking integration on the volatility of non-financial corporations. We find that firm-level employment, production, sales, and cash flows are less volatile after interstate banking deregulation, particularly for firms that have limited access to external finance. This finding suggests that bank-dependent firms exploit wider access to finance after deregulation to smooth out idiosyncratic shocks. In fact, short-term credit becomes less pro-cyclical after out-of-state bank entry is permitted. Finally, lower volatility in real-side variables after deregulation translates into lower idiosyncratic risk in stock returns.

fecha de publicación

  • 2009

Líneas de investigación

  • Banking
  • Banks
  • Interstate Banking


  • 2009-46