Parsimonious Lenders: Bank Concentration and Credit Availability to Small Businesses

Yongjin Park ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines how bank competition affects the amount of credit provided to small businesses using both the loan turndown rate and the size of granted loans and L/Cs. Using 2003 National Survey of Small Business Finance data, we show that commercial banking in concentrated banking markets are more likely to reject loan applications. Moreover, the size of granted loans is found to be significantly smaller in concentrated markets. Finally, we show that the total limit of L/Cs that a firm has is also significantly smaller for firms in concentrated banking markets. Our finding challenges a notion that credit market competition may be inimical to the formation of mutually beneficial relationships between firms and specific creditors. We do not find any evidence that bank concentration is instrumental in building relationship banking and our results suggest the opposite.

Keywords: Bank Competition; Credit Availability; Small Business; Relationship Banking (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-ban, nep-com and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:9266

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