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Banking Deregulations, Financing Constraints, and Firm Entry Size

  • William R. Kerr
  • Ramana Nanda

We examine the effect of U.S. branch banking deregulations on the entry size of new firms, using micro-data from the U.S. Census Bureau. We find that the average entry size for startups did not change following the deregulations. However, among firms that survived at least four years, a greater proportion of firms entered either at their maximum size or closer to the maximum size in the first year. The magnitude of these effects were small compared to the much larger changes in entry rates of small firms following the reforms. Our results highlight that this large-scale entry at the extensive margin can obscure the more subtle intensive margin effects of changes in financing constraints. (JEL: E44, G21, L26, L43, M13) (c) 2010 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 582-593

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:582-593
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  1. Da Rin, M. & Di Giacomo, M. & Sembenelli, A., 2010. "Entrepreneurship, Firm Entry, and the Taxation of Corporate Income: Evidence from Europe," Discussion Paper 2010-026, .
  2. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06.
  3. Claudio Michelacci & Olmo Silva, 2005. "Why So Many Local Entrepreneurs?," Working Papers wp2005_0506, CEMFI.
  4. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, 02.
  5. Ross Levine & Alexey Levkov & Yona Rubinstein, 2011. "Racial Discrimination and Competition," CEP Discussion Papers dp1069, Centre for Economic Performance, LSE.
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  7. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  8. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
  9. Ramana Nanda, 2008. "Cost of External Finance and Selection into Entrepreneurship," Harvard Business School Working Papers 08-047, Harvard Business School.
  10. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  11. Silvia Ardagna & Annamaria Lusardi, 2009. "Where does regulation hurt? Evidence from new businesses across countries," NBER Working Papers 14747, National Bureau of Economic Research, Inc.
  12. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
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