The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act

Panagiotis Avramidis (), George Pennacchi, Konstantinos Serfes () and Kejia Wu ()
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Panagiotis Avramidis: https://www.acg.edu/faculty/panagiotis-avramidis/

No 22-06, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This paper analyzes how bank regulation that promotes greater access to credit impacts the financing of targeted small firms. It develops a model where banks compete with trade creditors to fund small firms and applies it to study the effects of the Community Reinvestment Act (CRA). The empirical tests reveal that a CRA-induced increase in bank loans reduces small firms’ use of relatively expensive trade credit. The effect is more profound in low- and medium-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries.

Keywords: Competition; Regulation; Trade credit; Small business loans (search for similar items in EconPapers)
JEL-codes: G14 G21 L13 L49 L50 (search for similar items in EconPapers)
Pages: 49
Date: 2022-02-17
New Economics Papers: this item is included in nep-ban, nep-bec, nep-com, nep-ent, nep-fdg, nep-reg and nep-sbm
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Journal Article: The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:93724

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DOI: 10.21799/frbp.wp.2022.06

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