Finance and Efficiency: Do Bank Branching Regulations Matter?
We document that the deregulation of bank branching restrictions in theUnited States triggered a reallocation across sectors, with end effectson state-level volatility. This change in state-level volatility cannotbe explained simply by shifts in sector-level returns and volatility. Areallocation effect is at play. To study this effect, we invoke abenchmark allocation based on mean-variance portfolio theory applied tosectoral returns. Wefind that the realized sectoral allocation of outputat the state-level converges towards this benchmark allocation, at arate that is hastened following the deregulation. This partly occursbecause sectors with zero weight in the benchmark allocation see theirshare of total output shrink. We show convergence is particularly strongin sectors characterized by young, small and external finance dependentfirms, and for states that have a larger share of such sectors.Thefindings are robust to the endogeneity of deregulation dates. Theysuggest that improving bank access to branching affects the sectoralspecialization (or diversification) of output, in a manner that dependson the variance-covariance properties of sectoral returns, rather thanon their average only.
Year of publication: |
2010-01-21
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Authors: | Acharya, Viral ; Imbs, Jean ; Sturgess, Jason |
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