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Parsimonious Lenders: Bank Concentration and Credit Availability to Small Businesses

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  • Yongjin, Park

Abstract

This paper examines how bank competition affects the amount of credit provided to small businesses using both the loan turndown rate and the size of granted loans and L/Cs. Using 2003 National Survey of Small Business Finance data, we show that commercial banking in concentrated banking markets are more likely to reject loan applications. Moreover, the size of granted loans is found to be significantly smaller in concentrated markets. Finally, we show that the total limit of L/Cs that a firm has is also significantly smaller for firms in concentrated banking markets. Our finding challenges a notion that credit market competition may be inimical to the formation of mutually beneficial relationships between firms and specific creditors. We do not find any evidence that bank concentration is instrumental in building relationship banking and our results suggest the opposite.

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File URL: http://mpra.ub.uni-muenchen.de/9266/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9266.

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Date of creation: Apr 2008
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Handle: RePEc:pra:mprapa:9266

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Related research

Keywords: Bank Competition; Credit Availability; Small Business; Relationship Banking;

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References

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  1. Donald Morgan & Bertrand Rime & Philip Strahan, 2001. "Bank integration and business volatility," Staff Reports 129, Federal Reserve Bank of New York.
  2. Shaffer, Sherrill, 1998. "The Winner's Curse in Banking," Journal of Financial Intermediation, Elsevier, vol. 7(4), pages 359-392, October.
  3. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  4. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
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Cited by:
  1. Claudia Capozza & Angela Stefania Bergantino, 2013. "The effect of Bank Concentration on Entrepreneurship in Central and Eastern European Transition Countries_x0003_," ERSA conference papers ersa13p1049, European Regional Science Association.

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