Spillovers in Local Banking Markets

How are neighboring firms affected when a bank learns more about a given firm? We analyze exchange-rate-induced movements of Peruvian firms across a threshold that governs their regulatory treatment by banks. Firms that cross the threshold supply more information to their banks and experience a subs...

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Bibliographic Details
Published in:The Review of Corporate Finance Studies 2016-09, Vol.5 (2), p.139-165
Main Authors: Garmaise, Mark J., Natividad, Gabriel
Format: Article
Language:English
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Summary:How are neighboring firms affected when a bank learns more about a given firm? We analyze exchange-rate-induced movements of Peruvian firms across a threshold that governs their regulatory treatment by banks. Firms that cross the threshold supply more information to their banks and experience a substantial increase in financing. We find positive spillover effects: the neighbors of the above-threshold firms also experience increased financing. These spillovers are confined to neighbors sharing a bank, and the performance of new loans to these neighbors improves, suggesting that the bank has become better informed about other local firms. Received October 15, 2015; accepted May 16, 2016 by Editor Efraim Benmelech.
ISSN:2046-9128
2046-9136
DOI:10.1093/rcfs/cfw005