Credit Markets, Relationship Banking, and Firm Entry

Qingqing Cao (), Paolo Giordani, Raoul Minetti and Pierluigi Murro
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Qingqing Cao: Michigan State University

No 2003, Working Papers CASMEF from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: Credit frequently flows to the business sector through information-intensive bank-firm relationships. This paper studies the impact of relationship banking on firm entry. Exploiting Italian data, we document that relationship-oriented local credit markets feature lower entry, larger size at entry, and relatively more spin-offs than de novo entrepreneurs' entries. Information spillovers from credit relationships to entrants contribute to these effects. A dynamic general equilibrium model calibrated to the Italian data can match these effects when information spillovers are allowed for. Relationship banks' information on incumbents is transferable to incumbents' spin-offs but crowds out information acquisition on de novo entrants. The buildup of incumbents' business wealth during credit relationships can outweigh the aggregate output effect of reduced entry.

Keywords: Credit Relationships; Firm Entry; Information Spillovers; Spin-offs (search for similar items in EconPapers)
JEL-codes: E44 G21 O16 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2020-05
New Economics Papers: this item is included in nep-cfn, nep-com, nep-eur, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:lui:casmef:2003

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