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Credit Markets, Relationship Banking, and Firm Entry

Raoul Minetti, Qingqing Cao (), Paolo Giordani and Pierluigi Murro ()
Additional contact information
Qingqing Cao: Michigan State University, Department of Economics, Postal: Department of Economics, Michigan State University, 110 Marshall-Adams Hall, 486 W. Circle Dr., East Lansing, MI 48824

No 2020-10, Working Papers from Michigan State University, Department of Economics

Abstract: Credit frequently flows to the business sector through information-intensive bank-firm relationships. This paper studies the impact of relationship banking on firm entry. Exploiting Italian data, we document that relationship-oriented local credit markets feature lower firm entry, larger size at entry, and relatively more spin-offs than de novo entrepreneurs' entries. Information spillovers from credit relationships to entrants contribute to these effects. A dynamic general equilibrium model calibrated to the Italian data can match the effects when information spillovers are allowed for. Relationship banks' information on incumbents is trans-ferable to incumbents' spin-offs but crowds out information acquisition on de novo entrants. The buildup of incumbents' business wealth during credit relationships can outweigh the aggregate output effect of reduced entry.

Keywords: Credit Relationships; Firm Entry; Information Spillovers; Spin-offs (search for similar items in EconPapers)
JEL-codes: E44 G21 O16 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2020-05-12
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent and nep-mac
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