This paper examines the influence of bank branch deregulation on corporate borrowers' stock price crash risk. Using a large sample of U.S. public firms over the period 1962–2001, we provide robust evidence that intrastate branch reform contributes to the reduction of firms' stock price crash risk. Further analysis shows that the negative relation between bank branch deregulation and crash risk is more pronounced among firms that are more dependent on external finance and lending relationships, as well as firms that have weaker corporate governance and greater financial constraints. Our findings are consistent with the notion that bank branch reform improves bank monitoring efficiency, thereby reducing borrowing firms' bad news formation and hoarding, and hence their stock price crash risk. Overall, our empirical evidence suggests that, as a reform aimed at removing restrictions on bank branch expansion, bank deregulation also helps protect shareholders' wealth.

This paper examines the impact of product failures on the pricing of bank loans using hand-collected data on product recalls. We find that banks tend to charge higher loan prices for firms involved in product recalls. Uncertainty as to a recall's ultimate impact on a firm's credit risk conditions banks’ loan-pricing reaction, as reflected in a firm's default risk, information asymmetry and governance deficiency, and by the damage to its reputation, arising from the recall. Further analysis reveals that the impact of product recalls on the cost of debt is stronger in firms that rely more extensively on bank financing, firms with more severe recalls, and those adopting passive recall strategies. However, medical device firms, for which product recalls are often considered a normal part of doing business, do not experience a rise in their bank financing costs following a recall. Finally, we find that recall firms experience a deterioration in their financial performance and a rise in product lawsuits post recall. Overall, our findings shed new light on the economic consequences of product failures through the lens of creditors.