Locally Owned Bank Commuting Zone Concentration and Employer Start-Ups in Metropolitan, Micropolitan and Non-Core Rural Commuting Zones from 1970-2010

Access to financial capital is vital for the sustainability of the local business sector in metropolitan and nonmetropolitan communities. Recent research on the restructuring of the financial industry from local owned banks to interstate conglomerates has raised questions about the impact on rural economies. In this paper, we begin our exploration of the Market Concentration Hypothesis and the Local Bank Hypothesis. The former proposes that there is a negative relationship between the percent of banks that are locally owned in the local economy and the rate of business births and continuations, and a positive effect on business deaths, while that latter proposes that there is a positive relationship between the percent of banks that are locally owned in the local economy and the rate of business births and continuations, and a negative effect on business deaths. To examine these hypotheses, we examine the impact of bank ownership concentration (percent of banks that are locally owned in a commuting zone) on business establishment births and deaths in metropolitan, micropolitan and non-core rural commuting zones. We employ panel regression models for the 1980-2010 time frame, demonstrating robustness to several specifications and spatial spillover effects. We find that local bank concentration is positively related to business dynamism in rural commuting zones, providing support to the importance of relational lending in rural areas, while finding support for the importance of market concentration in urban areas. The implications of this research are important for rural sociology, regional economics, and finance.