Corporate income taxation and prudential regulation are complementary instruments for public policy in banking markets. The common deductibility of interest payments induces debt bias and causes banks to be excessively levered. A reduction in debt-bias can achieve two goals at the same time: It...

Close bank relationships are thought to ameliorate firms' liquidity constraints--a phenomenon frequently measured by liquidity sensitivity of investment. Using a panel of German firms during the formative years of universal banking (1903-1913), this paper shows that, even controlling for...