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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.

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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  • Scott, Jonathan A. & Dunkelberg, William C., 2010. "Competition for small firm banking business: Bank actions versus market structure," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2788-2800, November.
  • Handle: RePEc:eee:jbfina:v:34:y:2010:i:11:p:2788-2800
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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, vol. 37(9), pages 3412-3424.
    2. Rahaman, Mohammad M., 2011. "Access to financing and firm growth," Journal of Banking & Finance, 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, vol. 35(4), pages 935-954, April.
    4. Florian LEON, 2015. "What do we know about the role of bank competition in Africa?," Working Papers 201516, CERDI.
    5. 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 2012-013, Tilburg University, Center for Economic Research.
    6. Huang, Hui & Shi, Xiaojun & Zhang, Shunming, 2011. "Counter-cyclical substitution between trade credit and bank credit," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1859-1878, August.
    7. Fiordelisi, Franco & Marques-Ibanez, David & Molyneux, Phil, 2011. "Efficiency and risk in European banking," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1315-1326, May.
    8. Tabak, Benjamin M. & Gomes, Guilherme M.R. & da Silva Medeiros, Maurício, 2015. "The impact of market power at bank level in risk-taking: The Brazilian case," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 154-165.
    9. Berger, Allen N. & Black, Lamont K., 2011. "Bank size, lending technologies, and small business finance," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 724-735, March.
    10. Adams, Robert M. & Amel, Dean F., 2011. "Market structure and the pass-through of the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1087-1096, May.

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