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The Impact of Bank Structure on Small Business and Small Farm Lending

  • Steven G. Craig

    (University of Houston)

  • Polly T. Hardee

    (University of Houston)

This paper empirically explores the impact of bank size, holding company affiliation and the degree of branching on small business and farm lending through a conceptual analysis encompassing private information asymmetries inherent in these bank dependent borrowers. The study expands the literature by removing the influence of capital constraints in bank dependent lending through comparing real estate secured to non real estate loans in a reduced form model. Furthermore, it encompasses an allocation analysis over bank dependent loans, its large loan counterpart and other assets. Overall the findings indicate that not only small banks, but instate and more particularly one bank holding company banks devote more of their assets to small business and farm loans. Banks owned by out-of-state holding companies do not. Low to moderately branched banks are also active in these markets. In this respect the smaller, more simply structured bank may possess a relative advantage in the bank dependent loan market arising from the capacity to mitigate acute informational asymmetries.

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File URL: http://jefsite.org/RePEc/pep/journl/jef-2001-06-1-e-craig.pdf
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Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance.

Volume (Year): 6 (2001)
Issue (Month): 1 (Spring)
Pages: 59-83

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Handle: RePEc:pep:journl:v:6:y:2001:i:1:p:59-83
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Web page: http://bschool.pepperdine.edu/jef

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  1. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1998. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-007, New York University, Leonard N. Stern School of Business-.
  2. Robert DeYoung & Lawrence G. Goldberg & Lawrence J. White, 1997. "Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-025, New York University, Leonard N. Stern School of Business-.
  3. Joe Peek & Eric S. Rosengren, 1997. "Bank consolidation and small business lending: it's not just bank size that matters," Working Papers 97-1, Federal Reserve Bank of Boston.
  4. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
  6. Goldberg, Lawrence G. & White, Lawrence J., 1998. "De novo banks and lending to small businesses: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 851-867, August.
  7. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 801-817.
  8. Strahan, Philip E. & Weston, James P., 1998. "Small business lending and the changing structure of the banking industry1," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 821-845, August.
  9. Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
  10. 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.
  11. Jayaratne, Jith & Wolken, John, 1999. "How important are small banks to small business lending?: New evidence from a survey of small firms," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 427-458, February.
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