A Simple Model of Banking Competition With Bank Size Heterogeneity and Lending Spillovers

Abstract

We develop a multimarket spatial competition model in which large banks compete with small banks for transparent and opaque borrowers. Opaque borrower lending is influenced by a spillover from transparent borrower markets that depends on the structure of the banking market and is transmitted by banks’ risk‐bearing capacities. Consistent with diverse empirical findings, the structure of the banking market determines whether competition improves credit access (small bank dominated markets) or reduces bank lending (large bank dominated markets). In sufficiently heterogeneous (homogeneous) banking markets, a U‐shaped (inverse U‐shaped) relationship between credit access and bank competition applies.

Does bank competition spur firm innovation?

“…Small banks have advantages in forming relationships with opaque firms that use more soft information (Berger, Frame, & Miller, 2005). In addition, in a homogeneous market with many small banks, bank competition increases the access of opaque firms to credit, whereas in a heterogeneous market controlled by large banks, bank competition reduces access to external financing by opaque firms (Heddergott & Laitenberger, 2017). Due to information advantage, the competition of local banks promotes the innovation activities of opaque firms more than that of distant banking markets (Tian & Han, 2019).…”

Peranan Bank-Firm Relationship Dalam Meningkatkan Kinerja Perusahaan Nonkeuangan

“…Bank bisa saja mengungkapkan informasi tersebut kepada pesaing baik secara sengaja maupun tidak sengaja. Hal ini memungkin kan bank untuk meminta tingkat bunga yang lebih tinggi dan lebih banyak jaminan kepada perusahaan di masa depan (Aysan, Disli, & Ozturk, 2018;Gama & Auken, 2014;Heddergott & Laitenberger, 2017).…”