Banking regulation, institutional framework and capital structure: International evidence from industry data

This paper investigates the degree to which banking regulation and institutional environment affects corporate finance choices. La Porta et al. (1997) and (1998) have shown the effects of investor protection on financing decisions. We extend these measures of investor protection and develop a new measure for banking regulation. We find that prudential banking regulation is positively associated with industry indebtedness, indicating that prudential rules make it easier for firms to access credit markets. Furthermore, we also find a significant effect of disclosure requirements on leverage decisions.