Banking liberalization and firms debt structure: international evidence
2011
This paper analyzes the effect of banking liberalization on firms� debt structure and how this
effect varies across firm size and countries depending on bank supervision, investor protection,
financial structure, and development of financial system. Results for 11,845 firms in 39 countries
over the 1995-2004 period indicate that banking liberalization increases firm leverage and
reduces its maturity. Debt availability increases in countries with stronger official and private
supervision, better protection of property rights and lower protection of creditor rights, and more
bank-oriented and less-developed financial systems. The reduction of debt maturity is greater in
countries with stronger official supervision and property rights protection. Banking liberalization,
moreover, affects small and large firms differently. Small firms in financially developed countries
and large firms in less developed countries benefit least from banking liberalization.
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