Comparative advantages of regional versus national banks in alleviating SME's financial constraints

Céline Meslier, Alain Sauviat and Dian Yuan
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Céline Meslier: UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Alain Sauviat: UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: This paper provides new evidence on the impact of local banking market structure on SME's access to credit and emphasize the comparative advantages of regional versus national banks in alleviating SME's financial constraints. Matching a unique dataset on bank branch-level and firm-level information for a sample of 33,165 French manufacturing firms over the 2005–2013 period, we rely on two alternative indicators to capture different dimensions of SMEs financial constraints and find significant differences in the drivers of these constraints. While higher market share of regional banks or stronger presence of geographically-focused banks helps to alleviate SMEs' short-term credit constraint, higher market share of national banks or stronger presence of geographically-diversified banks is beneficial to reduce SMEs investment cash-flow sensitivity. Moreover, in both cases, SMEs' financial constraints are strengthened in functionally-distant markets. In addition, during crisis times, the benefits of relationship banking on short-term credit constraint remain and, in some cases, are reinforced. We also find that these benefits differ according to SMEs pre-crisis financial health. Regional banks facilitate access to short term credit for firms which were more profitable before the global financial crisis and particularly those who experienced a sharp decline in profitability in troubled times, supporting the hypothesis of continuation lending by relationship banks during economic downturns.

Date: 2020-10
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Published in International Review of Financial Analysis, 2020, 71, pp.101471. ⟨10.1016/j.irfa.2020.101471⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04881119

DOI: 10.1016/j.irfa.2020.101471

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