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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Flooded through the back door: The role of bank capital in local shock spillovers |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Financial and Quantitative Analysis |
| Publisher | Cambridge University Press |
| Geographical Reach | international |
| ISSN | 0022-1090 |
| Volume | 57 |
| Number | 7 |
| Page Range | 2627 - 2658 |
| Date | 2022 |
| Abstract Text | This paper demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in non-disaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas. |
| Free access at | DOI |
| Official URL | https://doi.org/10.1017/S0022109022000321 |
| Related URLs |
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| Digital Object Identifier | 10.1017/S0022109022000321 |
| Other Identification Number | merlin-id:20617 |
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