Title: Risk-Sensitive Basel Regulations And Firms Access To Credit: Direct And Indirect Effects
Speaker(s) Dr. Sanket Mohapatra, Associate Professor, IIM Ahmedabad Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

This paper examines the impact of risk-sensitive Basel regulations on debt financing of firms around the world and investigates how firms cope with the impact through adjustments to their financing sources and capital investments. We find that the implementation of Basel II regulations is associated with reduced credit availability and higher cost of debt, particularly for lower-rated firms. Such firms mitigate the shortage in bank credit through increased reliance on accounts payables, lower payouts to shareholders, and reduction in their capital investments in the post-Basel II period. The results are robust to alternative estimations that control for credit supply shocks and the inclusion of loan-level information. The findings of this paper substantially contribute to the understanding of the real effects of risk-sensitive bank capital regulations.

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