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Does Bank Branch Competition Alleviate Household Credit Constraints?Evidence from Korean Household Data

Listed author(s):
  • Saeyeon Oh

    ()

    (Department of Economics, Sogang University, Seoul)

  • Jungsoo Park

    ()

This paper provides empirical evidence on how bank branch competition affects household credit constraints based on Korean household and nation-wide bank branch data. The main findings are as follow. First, regression results show that banks alleviate household credit constraint when bank branch competition is strong. Second, relaxation of credit constraint occurs at the internal margin, while external margin is not affected. Finally, main beneficiaries from increase in banking competition are older households with head age 35 or above. These results are consistent with the fact that most Korean banks are multi-branch nation-wide banks transacting based on hard information. Banks are compelled to provide more household credit in order to compensate for the lower profitability in competitive market.

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File URL: ftp://163.239.156.99/wpaper/OSY_RIME_2015_01.pdf
File Function: First version, 2015
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Paper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1501.

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Length: 22 pages
Date of creation: 2015
Handle: RePEc:sgo:wpaper:1501
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  1. Berlin, Mitchell & Mester, Loretta J, 1999. "Deposits and Relationship Lending," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 579-607.
  2. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
  3. Duca John V. & Rosenthal Stuart S., 1993. "Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 77-103, October.
  4. 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.
  5. Cavalluzzo, Ken S & Cavalluzzo, Linda C, 1998. "Market Structure and Discrimination: The Case of Small Businesses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 771-792, November.
  6. Allen Berger & Leora Klapper & Rima Turk-Ariss, 2009. "Bank Competition and Financial Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(2), pages 99-118, April.
  7. Carbo-Valverde, Santiago & Hannan, Timothy H. & Rodriguez-Fernandez, Francisco, 2011. "Exploiting old customers and attracting new ones: The case of bank deposit pricing," European Economic Review, Elsevier, vol. 55(7), pages 903-915.
  8. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
  9. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
  10. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
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