Close Competitors? Bilateral Bank Competition and Spatial Variation in Firms’ Access to Credit

Ralph De Haas, Liping Lu and Steven Ongena

No 15015, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We interview 379 bank CEOs in 20 emerging markets to identify their banks’ main competitors. We show that banks are more likely to identify another bank as a main competitor in small-business lending when both banks are foreign owned or relationship oriented; when there exists a large spatial overlap in their branch networks; and when the potential competitor has fewer hierarchical layers. We then construct a novel bilateral competition measure at the locality level and assess how well it explains geographic variation in firms’ credit constraints. We show that intense bilateral bank competition tightens local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.

Keywords: Bilateral bank competition; Geography of banking; Credit constraints; Small-business lending (search for similar items in EconPapers)
JEL-codes: D22 D40 F36 F65 G21 R11 R30 R51 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban, nep-bec, nep-com and nep-fdg
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