How does the stock market respond to changes in bank lending standards?

•The stock market impact of bank credit supply shocks is studied.•Industry stock returns fall significantly in response to tightening bank credit supply.•Stock returns fall relatively more in more financially dependent industries.

I investigate the industry-level responses of U.S. stock returns to unanticipated changes in bank lending standards, exploiting cross-industry variation in the levels of dependence on external finance. I document that, on average, cumulative stock returns fall significantly by 1.36 percentage points two years after an unexpected one-standard-deviation tightening in lending standards. Moreover, moving from an industry at the 10th percentile of financial dependence to one at the 90th percentile adds between 1.24 and 2.19 additional percentage points to this effect.