Finance Online Research Seminar: “Out With The New, In With The Old? Bank Supervision And The Composition Of Firm Investment” by Dr. Thorsten BECK – The Business School University of London

We exploit the exogenous variation generated by the creation of the Single Supervisory Mechanism (SSM) in the euro area. We find that relative to firms borrowing from banks that remained under the supervision of national authorities, firms borrowing from SSM-supervised banks reduced (increased) investment in intangible assets (tangible investment and cash holdings). These effects do not pre-date the supervisory reform, and do not obtain in non-SSM jurisdictions. The reallocation of investment towards physical assets is stronger in intangible-intensive industries, suggesting that more centralized bank supervision can slow down the shift from the “old” to the “new” economy.