De-branching,too-much-branching,and cost of debt of SMEs in Slovakia

We investigate nonlinear effects of bank branch saturation on SMEs' cost of debt at regional level in Slovakia over the period 2013–2019. We adopt the two-step approach by first constructing model of bank branch localization, and then analyzing effects of positive and negative deviations from the equilibrium level. We observe negative effect of debranching, but report no effect of positive increase in deviations from equilibrium level on SMEs' cost of debt. The most affected firms are middle-sized, domestically owned, operating in low-tech industries, and with better creditworthiness. Bank market characteristics also tend to matter for pricing of firm's debt.