Comparative advantages of regional versus national banks in alleviating SME's financial constraints |
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| Institution: | 1. Fordham University, United States; Bank of Finland, Finland; and University of Sydney, Australia;2. Department of Banking, Insurance and Risk, Kozminski University, Jagiellonska 59, 03-301 Warsaw, Poland;3. National Bank of Poland, Poland;4. IESEG School of Management, Paris, France;5. LEM-CNRS 9221, Lille, France;1. Cass Business School, City University London, 106 Bunhill Row, EC1Y 8TZ London, UK;2. KU Leuven, Faculty of Economics and Business, Naamsestraat 69, 3000 Leuven, Belgium;3. European Bank for Reconstruction and Development, One Exchange Square, EC2A 2JN London, UK;4. De Nederlandsche Bank, Amsterdam, the Netherlands;5. Tilburg University, Department of Finance, Warandelaan 2, 5037 AB Tilburg, the Netherlands;6. Centre for Economic Policy Research, 33 Great Sutton Street, EC1V 0DX London, UK;1. Concordia University, John Molson School of Business Building, 1450 Guy, Montreal, Quebec H3H 0A1, Canada;2. Concordia University, John Molson School of Business Building, 1450 Rue Guy, Montreal, Quebec H3G 1M8, Canada;3. Xi''an Jiaotong-Liverpool University, International Business School Suzhou (IBSS), No 111 Ren''ai Road, Suzhou Dushu Lake Higher Education Town, Suzhou Industrial Park, Suzhou, Jiangsu Province 215123, PR China |
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| Abstract: | This paper provides new evidence on the impact of local banking market structure on SME's access to credit and emphasize the comparative advantages of regional versus national banks in alleviating SME's financial constraints. Matching a unique dataset on bank branch-level and firm-level information for a sample of 33,165 French manufacturing firms over the 2005–2013 period, we rely on two alternative indicators to capture different dimensions of SMEs financial constraints and find significant differences in the drivers of these constraints. While higher market share of regional banks or stronger presence of geographically-focused banks helps to alleviate SMEs' short-term credit constraint, higher market share of national banks or stronger presence of geographically-diversified banks is beneficial to reduce SMEs investment cash-flow sensitivity. Moreover, in both cases, SMEs' financial constraints are strengthened in functionally-distant markets. In addition, during crisis times, the benefits of relationship banking on short-term credit constraint remain and, in some cases, are reinforced. We also find that these benefits differ according to SMEs pre-crisis financial health. Regional banks facilitate access to short term credit for firms which were more profitable before the global financial crisis and particularly those who experienced a sharp decline in profitability in troubled times, supporting the hypothesis of continuation lending by relationship banks during economic downturns. |
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