Does Credit Competition Affect Small-Firm Finance?

While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, smal...

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Bibliographic Details
Published in:The Journal of finance (New York) 2010-06, Vol.65 (3), p.861-889
Main Authors: RICE, TARA, STRAHAN, PHILIP E.
Format: Article
Language:English
Subjects:
Access to credit
Bank assets
Bank credit
Bank loans
Branch banking
Competition
Competition between banks
Corporate finance
Credit supply
Economic competition
Expansion
Interstate banking
Lenders
Loan rates
Loans
Market entry
Regulation of financial institutions
Small and medium sized enterprises
Small business loans
Studies
Trade credit
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Summary:While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 80 to 100 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on the amount that small firms borrow.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2010.01555.x