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Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation

  • Robert DeYoung
  • Lawrence G. Goldberg
  • Lawrence J. White

This paper addresses the relationship between the aging process at new and relatively young banks and the tendency of banks to make loans to small businesses. Defining small business loans as C&I loans that are under $1 million in size, we analyze a sample of banks that had assets of less than $500 million in assets for the years 1993-1996 and that were 25 years of age or younger. We find, as have earlier studies, that banks' proclivities for small business lending are negatively related to their age and to their size. We proceed much farther, however, by introducing a number of additional explanatory variables. We find that small business lending is negatively related to the number of a bank's branches, to its recent growth rate, and to a bank's being part of a MBHC. Also, small business lending is positively related to higher concentration rates in urban areas but is negatively related to higher concentration in rural areas. Despite the inclusion of these additional variables, the negative effects of a bank's age on its small business lending persist, albeit with reduced magnitudes. We also examine sub-samples of our data. When only "young" banks (ten years old or less) are considered, the inclusion of the additional variables causes the effects of age to disappear for freestanding (independent and OBHC) banks; and when only MBHC banks are considered, age disappears as a significant influence.

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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-025.

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Date of creation: 10 Oct 1997
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Handle: RePEc:fth:nystfi:98-025
Contact details of provider: Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/

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  1. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  2. Rebel A. Cole & Lawrence G. Goldberg & Lawrence J. White, 1999. "Cookie-cutter versus character: the micro structure of small business lending by large and small banks," Proceedings 777, Federal Reserve Bank of Chicago.
  3. 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.
  4. Berger, Allen N. & Saunders, Anthony & Scalise, Joseph M. & Udell, Gregory F., 1998. "The effects of bank mergers and acquisitions on small business lending," Journal of Financial Economics, Elsevier, vol. 50(2), pages 187-229, November.
  5. 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.
  6. William C. Hunter & Aruna Srinivasan, 1990. "Determinants of de novo bank performance," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 14-25.
  7. Lang, William W & Nakamura, Leonard I, 1989. " Information Losses in a Dynamic Model of Credit," Journal of Finance, American Finance Association, vol. 44(3), pages 730-46, July.
  8. Arshadi, Nasser & Lawrence, Edward C., 1987. "An empirical investigation of new bank performance," Journal of Banking & Finance, Elsevier, vol. 11(1), pages 33-48, March.
  9. 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.
  10. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
  11. 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.
  12. Mark E. Levonian, 1996. "Explaining differences in farm lending among banks," Economic Review, Federal Reserve Bank of San Francisco, pages 12-22.
  13. Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 133-149, February.
  14. Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
  15. Philip E. Strahan & James Weston, 1996. "Small business lending and bank consolidation: is there cause for concern?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Mar).
  16. William R. Keeton, 1995. "Multi-office bank lending to small businesses: some new evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 45-57.
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