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Competition for small firm banking business: Bank actions versus market structure

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  • Scott, Jonathan A.
  • Dunkelberg, William C.
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    Abstract

    This paper addresses two questions related to the ongoing consolidation of the US banking industry and its effect on small firm financing. First, are conventional measures of market structure (e.g. geographic market size and deposit concentration) related to bank competition for small firm financial business? Second, does an increase in bank competition produce an improvement in bank services irrespective of market structure? To answer these questions we use a survey of small firm owners that asks them to report on changes in bank competition for their business. Our findings show that reports of increased competition by small firm owners are negatively related to the level of and change in deposit concentration. In addition, we find a significant positive association between changes in bank competition reported by small firms and their reports of changes in banking outcomes (e.g. service quality) that is independent of deposit concentration, firm risk, and credit usage.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 11 (November)
    Pages: 2788-2800

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:11:p:2788-2800

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Small business Competition Bank market concentration;

    References

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    Cited by:
    1. Chong, Terence Tai-Leung & Lu, Liping & Ongena, Steven, 2013. "Does banking competition alleviate or worsen credit constraints faced by small- and medium-sized enterprises? Evidence from China," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(9), pages 3412-3424.
    2. Rahaman, Mohammad M., 2011. "Access to financing and firm growth," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 709-723, March.
    3. Kano, Masaji & Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2011. "Information verifiability, bank organization, bank competition and bank-borrower relationships," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(4), pages 935-954, April.
    4. Huang, Hui & Shi, Xiaojun & Zhang, Shunming, 2011. "Counter-cyclical substitution between trade credit and bank credit," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(8), pages 1859-1878, August.
    5. Fiordelisi, Franco & Marqués-Ibáñez, David & Molyneux, Phil, 2010. "Efficiency and risk in european banking," Working Paper Series, European Central Bank 1211, European Central Bank.
    6. Adams, Robert M. & Amel, Dean F., 2011. "Market structure and the pass-through of the federal funds rate," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(5), pages 1087-1096, May.
    7. Berger, Allen N. & Black, Lamont K., 2011. "Bank size, lending technologies, and small business finance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 724-735, March.
    8. Chong, T.T.L. & Lu, L. & Ongena, S., 2012. "Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China (Replaces CentER DP 2011-006)," Discussion Paper, Tilburg University, Center for Economic Research 2012-013, Tilburg University, Center for Economic Research.

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