Local Financial Structure and the Pandemic’s Effect on the Distribution of Employment

Ross Levine, Chen Lin and Wensi Xie

The Review of Corporate Finance Studies, 2025, vol. 14, issue 3, 679-716

Abstract: Does the structure of financial systems influence the employment respo0nse to adverse shocks? Using (a) county-industry employment data differentiated by firm size and (b) high-frequency county employment data differentiated by income, we find that employment at small firms, employment of low-income workers, and overall employment fell less in counties with higher proportions of small banks in response to the pandemic. Furthermore, small banks lend more to small businesses than large banks, above and beyond government-guaranteed PPP loans. Evidence suggests that small banks cushioned small firms and low-income workers from the adverse effects of the pandemic. (JEL G21, E24, E32, J21, H12)

Date: 2025
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