A darker side to decentralized banks: market power and credit rationing in SME lending
Files
First author draft
Date
2012-08
Authors
Canales, Rodrigo
Nanda, Ramana
Version
First author draft
OA Version
Citation
R. Canales, R. Nanda. 2012. "A darker side to decentralized banks: Market power and credit rationing in SME lending" Journal of Financial Economics, Volume 105, Issue 2, pp.353-366. https://doi.org/10.1016/j.jfineco.2012.03.006
Abstract
We use loan-level data to study how the organizational structure of banks impacts
small business lending. We find that decentralized banks — where branch managers have
greater autonomy over lending decisions — give larger loans to small firms and those
with "soft information". However, decentralized banks are also more responsive to their
own competitive environment. They are more likely to expand credit when faced with
competition but also cherry pick customers and restrict credit when they have market
power. This "darker side" to decentralized banks in concentrated markets highlights that
the level of local banking competition is key to determining which organizational structure
provides better lending terms for small businesses.
Description
License
Copyright © 2008, 2011 by Rodrigo Canales and Ramana Nanda. Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.