To Build or to Buy? The Role of Local Information in Credit Market Development

Teng Wang ()
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Teng Wang: Board of Governors, Federal Reserve System, Washington, District of Columbia 20551

Management Science, 2019, vol. 65, issue 12, 5838-5860

Abstract: Exploiting the heterogeneity in legal constraints on local bank employees’ mobility, I show that access to local information influences banks’ modes of expansion. As restrictions on interbank labor mobility are relaxed, banks entering a new market establish branches directly instead of acquiring incumbent branches, resulting in a shift of composition of entrants. The treatment effect is strengthened when information asymmetries between local banks and entrants are severe. Furthermore, I find a surge in the volume and a reduction in the rates of local small business loans originated by surrounding incumbent banks after the entry of outside banks, especially after entrants establish new branches.

Keywords: banking: labor; credit market development; corporate finance; industrial organization; market structure; firm strategy; law; labor; investment; organizational studies; credit supply (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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