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Does Credit Competition Affect Small‐Firm Finance?

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  • TARA RICE
  • PHILIP E. STRAHAN

Abstract

While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 80 to 100 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on the amount that small firms borrow.

Suggested Citation

  • Tara Rice & Philip E. Strahan, 2010. "Does Credit Competition Affect Small‐Firm Finance?," Journal of Finance, American Finance Association, vol. 65(3), pages 861-889, June.
    • Handle: RePEc:bla:jfinan:v:65:y:2010:i:3:p:861-889
    DOI: 10.1111/j.1540-6261.2010.01555.x
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