Abstract
This study investigates the effect that bank equity claims in borrowing firms have on the availability of finance to the firm. The results suggest that allowing banks to hold equity claims in borrowing firms enhance debt availability to the firm. The results are consistent with arguments that equity claims may be helpful in transferring the benefits of an ongoing relationships to the borrowers, and thus eventually also enhance investment efficiency in the economy as a whole. The results, however, also suggest that very small or very large bank equity claims in borrowing firms do not have this impact. The results suggest that allowing banks to hold equity in borrowing firms may have some advantages. Policymakers should take this into account when reconsidering or creating regulations in this area.
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