Capital Constraints: How Bank Regulation Shapes Firm Export Behaviour

ABSTRACT This study investigates the impact of bank capital regulation on firms' export behaviour within a two‐country theoretical framework that explicitly incorporates the banking sector. We show that more stringent capital requirements discourage firms from exporting and reduce export scale by increasing financing costs through tighter lending conditions. Using a comprehensive dataset of listed firms in China, we find that higher bank capital adequacy ratios are associated with lower export propensity and export volumes, with effects particularly pronounced for firms more reliant on bank credit. We further explore the moderating roles of financial market development and monetary policy. The results indicate that more developed financial markets amplify the adverse effects of bank capital regulation on firms' export performance, whereas tighter monetary policy mitigates these effects. By integrating banking regulation, financial conditions, and firm‐level trade outcomes, this study contributes to the literature on banking and international trade and offers policy‐relevant insights for regulators seeking to balance financial stability with firms' international competitiveness.