DP16225 Out with the New, In with the Old? Bank Supervision and the Composition of Firm Investment

Author(s): Miguel Ampudia, Thorsten Beck, Alexander Popov
Publication Date: June 2021
Date Revised: June 2021
Keyword(s): Banking, Intangibles, investment, lending, Supervision
JEL(s): G21, G28
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16225

Using exogenous variation generated by the creation of the Single Supervisory Mechanism (SSM) in the euro area, we find that relative to firms borrowing from banks remaining under national supervision, firms borrowing from SSM-supervised banks reduce intangible assets and increase tangible assets and cash holdings. These effects do not pre-date the supervisory reform, do not obtain in non-SSM jurisdictions, and coincide with reductions in long-term debt and labor productivity. The reallocation of investment away from intangible assets is stronger in innovation-intensive sectors, suggesting that centralized bank supervision can slow down the shift from the capital-based to the knowledge-based economy.