FRIC/Finance Seminar with Steven Ongena, University of Zurich
FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Steven Ongena, University of Zurich.
Steven Ongena will present
Claire Celerier, University of Toronto
Thomas K. Kick, Deutsche Bundesbank
Steven Ongena, University of Zurich
We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both firms and banks could deduct a notional interest on their equity from their taxable income. Because local firms were also affected by these reforms, we employ loan level data from a credit register in a third-country, i.e., Germany, to better identify the differential impact on lending by banks that were 'treated' by these tax reforms versus a control group of banks that were not. We find that the decrease in the cost of equity leads banks to raise their equity ratio, and to concurrently expand their balance sheet by increasing the amount of credit supplied in Germany. Conversely, the reversal of these reforms leads to a decrease in lending.
Solbjerg Plads 3, 2000 Frederiksberg