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Are bigger banks better? Firm-level evidence from Germany

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  • Huber, Kilian Maria
Abstract
The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.

Suggested Citation

  • Huber, Kilian Maria, 2020. "Are bigger banks better? Firm-level evidence from Germany," LSE Research Online Documents on Economics 121861, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121861
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    File URL: http://eprints.lse.ac.uk/121861/
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    More about this item

    Keywords

    bank regulation; big banks; bank size; economic growth; brexit; economic geography; employment; globalisation; productivity; technological change; The research was funded by grants from the Centre for Economic Performance; Centre for Macroeconomics; LSE Institute of Global Affairs; Paul Woolley Centre; Sticerd; and Stiftung Familienunternehmen.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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