Bank Competition and Firm Creation

We investigate the effects of competition in the financial sector on the creation of firms in the nonfinancial sector, explicitly allowing for heterogeneous effects across borrowers characterized by different degrees of asymmetric information. We find evidence of a bell-shaped relationship between bank competition and firm creation. In addition, consistently with theories arguing that competition may reduce the availability of credit to informationally opaque firms, we find that bank competition results less favorable to the emergence of new firms in industrial sectors where informational asymmetries are more important.

[1]  Nathan Miller,et al.  Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks , 2002 .

[2]  S. Myers,et al.  The Paradox of Liquidity , 1995 .

[3]  Raghuram G. Rajan,et al.  The Benefits of Firm-Creditor Relationships: Evidence from small business data. * , 1993 .

[4]  Leora F. Klapper,et al.  The Ability of Banks to Lend to Informationally Opaque Small Businesses , 2001 .

[5]  Martha Starr-McCluer,et al.  Market Definition and the Analysis of Antitrust in Banking , 1997 .

[6]  D. Storey.  New firm growth and bank financing , 1994 .

[7]  Timothy H. Hannan.  Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending , 1991 .

[8]  M. Pagano,et al.  Why Do Companies Go Public? An Empirical Analysis , 1995 .

[9]  Emilia Bonaccorsi di Patti,et al.  The changing structure of local credit markets: Are small businesses special? , 2001 .

[10]  Steven A. Sharpe.  Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships , 1990 .

[11]  M. Riordan.  Competition and Bank Performance: A Theoretical Perspective , 1992 .

[12]  Allen N. Berger,et al.  The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future , 1998 .

[13]  Ann R. Thomas,et al.  Bank structure and new business creation lessons from an earlier time , 1995 .

[14]  T. Broecker.  Credit-Worthiness Tests and Interbank Competition , 1990 .

[15]  J. Rochet,et al.  Microeconomics of banking , 1997 .

[16]  M. Petersen,et al.  The Effect of Credit Market Competition on Lending Relationships , 1994 .

[17]  Giovanni Dell'Ariccia,et al.  Adverse selection as a barrier to entry in the banking industry , 1999 .

[18]  R. Levine.  Financial Development and Economic Growth: Views and Agenda , 1999 .

[19]  David Besanko,et al.  Banking deregulation: Allocational consequences of relaxing entry barriers , 1992 .

[20]  Nicola Cetorelli,et al.  Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data , 2001 .

[21]  Timothy H. Hannan.  Foundations of the Structure-Conduct-Performance Paradigm in Banking , 1991 .

[22]  Donald P. Morgan.  Judging the Risk of Banks: Why Can't Bond Raters Agree? , 1999 .

[23]  L. White,et al.  Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation , 1997 .

[24]  Sandra E. Black,et al.  Entrepreneurship and Bank Credit Availability , 2002 .

[25]  P. Chiappori,et al.  Spatial Competition in the Banking System: Localization, Cross Subsidies and the Regulation of Deposit Rates , 1995 .

[26]  J. Stiglitz,et al.  Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market , 1997 .

[27]  Luigi Zingales,et al.  Financial Dependence and Growth , 1996 .

[28]  Allen N. Berger,et al.  The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle , 1998 .