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Bank Structure, Relationship Lending and Small Firm Access to Finance: A Cross-Country Investigation

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  • Shannon Mudd

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Abstract

Loans to small firms are associated with relationship lending technologies that may be better supported by smaller banks. Whether competition helps or hinders small firm access to finance may depend on the size distribution of banks and the ways in which banks compete. Using cross-country data from surveys of firms and banks and a measure of contestability evidence is produced for a non-linear relationship between competition and the use of bank financing by small firms. While at very low levels of contestability an increase in contestability increases small firm use of bank finance, for most observations of contestability in the sample, an increase in contestability produces the opposite result. This also holds for medium size firms outside of manufacturing. Medium size firms in manufacturing exhibit a non-linear relationship between competition and use of bank credit, but in an opposing direction. Small firms are also more likely to use bank financing the higher is the small bank market share. However, neither the size distribution of banks nor the level of profitability of lending is shown to further influence the effect of contestability on small firm use of bank lending. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Shannon Mudd, 2013. "Bank Structure, Relationship Lending and Small Firm Access to Finance: A Cross-Country Investigation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(2), pages 149-174, October.
  • Handle: RePEc:kap:jfsres:v:44:y:2013:i:2:p:149-174
    DOI: 10.1007/s10693-012-0140-4
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    References listed on IDEAS

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    Cited by:

    1. Florian LEON, 2015. "What do we know about the role of bank competition in Africa?," Working Papers 201516, CERDI.
    2. Leon, Florian, 2015. "Does bank competition alleviate credit constraints in developing countries?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 130-142.
    3. Cristina Bernini & Paola Brighi, 2012. "Modeling the effects of Geographical Expansion Strategies on the Italian Minor Banks' Efficiency," Working Paper series 72_12, Rimini Centre for Economic Analysis.

    More about this item

    Keywords

    Access to credit; Small and medium-sized enterprises; Bank regulation; Relationship lending; Bank structure; Contestability; G21; G28; G32;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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