Parsimonious Lenders: Bank Concentration and Credit Availability to Small Businesses
This paper examines how bank competition affects the amount of credit provided to small businesses using both the loan turndown rate and the size of granted loans and L/Cs. Using 2003 National Survey of Small Business Finance data, we show that commercial banking in concentrated banking markets are more likely to reject loan applications. Moreover, the size of granted loans is found to be significantly smaller in concentrated markets. Finally, we show that the total limit of L/Cs that a firm has is also significantly smaller for firms in concentrated banking markets. Our finding challenges a notion that credit market competition may be inimical to the formation of mutually beneficial relationships between firms and specific creditors. We do not find any evidence that bank concentration is instrumental in building relationship banking and our results suggest the opposite.
|Date of creation:||Apr 2008|
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2001.
"Bank integration and business volatility,"
129, Federal Reserve Bank of New York.
- Mitchell A. Petersen & Raghuram G. Rajan, 1995.
"The Effect of Credit Market Competition on Lending Relationships,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 110(2), pages 407-443.
- 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.
- Shaffer, Sherrill, 1998.
"The Winner's Curse in Banking,"
Journal of Financial Intermediation,
Elsevier, vol. 7(4), pages 359-392, October.
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