To Build or to Buy? The Role of Local Information in Credit Market Development

Abstract

Exploiting the heterogeneity in legal constraints on local bank employees' mobility, I show that access to local information influences banks' modes of expansion. Banks entering a new market typically establish new branches directly when interbank labor mobility is less restrictive but acquire incumbent branches otherwise. The treatment effect is strengthened when information asymmetries between local and entrants are severe. Furthermore, I find a surge in the total amount of local small business and mortgage loans granted, a higher mortgage approval rate, and a reduction of mortgage rates by surrounding incumbent branches, precisely around the period of entrants establishing new branches, which indicate intensified competition among banks.

Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets

“…Previous studies primarily focus on the role of the enforcement of legal systems in the area of investor protection and show that strong law enforcement, which provides good legal protection to investors, also facilitates financial-market development and enhances firm valuation (see, e.g., La Porta, Lopez-de-Silanes, Shleifer, andVishny (1998), (2002)). Some recent studies focus on labor regulations and investigate the impacts on firm behavior (see, e.g., Fallick, Fleischman, and Rebitzer (2006), Marx, Strumsky, and Fleming (2009), Garmaise (2011), Acharya, Baghai, and Subramanian (2013), Wang (2016), and Younge and Marx (2016)). 2 There is a growing literature linking intellectual property law and firms' financing choices.…”

Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets

“…Previous studies primarily focus on the role of the enforcement of legal systems in the area of investor protection and show that strong law enforcement, which provides good legal protection to investors, also facilitates financial-market development and enhances firm valuation (see, e.g., La Porta, Lopezde-Silanes, Shleifer, and Vishny (1998), (2002)). Some recent studies focus on labor regulations and investigate the impacts on firm behavior (see, e.g., Fallick, Fleischman, and Rebitzer (2006), Marx, Strumsky, and Fleming (2009), Garmaise (2011), Acharya, Baghai and Subramanian (2013, Wang (2016), and Younge and Marx (2016) Serfling, and Srinivasan (2014) find that intellectual property protection affects firms' capital structure decision, and Leung, Mazouz, and Chen (2015) find that intellectual property protection benefits small firms by improving the liquidity of equity financing and reducing their costs of capital. Finally, Flammer, and Kacperczyk (2016) show that intellectual property protection affects firms' engagement in corporate social responsibility.…”