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.
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- Petersen, Mitchell A & Rajan, Raghuram G, 1995.
"The Effect of Credit Market Competition on Lending Relationships,"
The Quarterly Journal of Economics,
MIT Press, vol. 110(2), pages 407-43, May.
- 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.
- Donald Morgan & Bertrand Rime & Philip E. Strahan, 2001.
"Bank Integration and Business Volatility,"
Center for Financial Institutions Working Papers
02-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
- 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.
- 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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