Locally Owned Bank Concentration and Business Start-Ups and Closures in U.S. Metropolitan, Micropolitan, and Rural Counties from 1980-2010

Abstract

Access to financial capital is vital for the sustainability of the local business sector. Recent research on the restructuring of the financial industry from local owned banks to interstate conglomerates has raised questions about the impact on local economies, especially in rural areas. We examine the impact of bank ownership concentration on business formations, continuations, and deaths in metropolitan, micropolitan, and rural non-core U.S. counties. Using limited-access Census data, we find that local bank concentration is positively related to business births and deaths, or churn, in rural counties, but the opposite effects occur in metropolitan areas. We demonstrate robustness to several specifications and spatial spillover effects.

Bank on it: Do Local Banks Contribute to Rural Community Prosperity?*

“…Therefore, it is advisable to explore the question between bank ownership/concentration at a higher and acceptable unit of aggregation (i.e., CZ). What these multiple levels of data analysis do show, however, is that local banking matters, whether at the network level (Kilkenny and Nalbarte 2002), county level (Carpenter et al 2020;Petach et al 2021) or CZ level (our current study).…”

“…Much of the past research on nonmetropolitan communities has focused on various forms of community capital, such as social, political, and amenity (Besser and Miller 2013a, 2013b; Coffè 2009; Hunter et al 2005). These models, however, rarely examine the effects of financial capital (Carpenter et al 2020; Flora et al 2015). This is unfortunate as local financial capital is an important concept across a range of disciplines (Black and Strahan 2002; Davis, Haltiwanger, and Jarmin 2008).…”

“…The changing nature of banking, and the research question which focuses on bank ownership in non‐core economies, indicates that a broader unit of analysis should be examined. Recent research on banks at the county level does not control for these trends (Carpenter et al 2020; Petach et al 2021; Schneiberg and Parmentier 2022). Moreover, these studies also document significant spatial spillover at the county level, indicating processes expand across the county line.…”

“…Lotspeich, Tolbert, and Mencken (2019) show that convenional small business lending is positively associated with business longevity in nonmetropolitan oil and gas-intensive counties. In a cross-sectional time-series analysis, Carpenter et al (2020) show that local bank concentration predicts a positive growth rate for business start-ups in non-core counties since 1980.…”

When to use commuting zones? An empirical description of spatial autocorrelation in U.S. counties versus commuting zones

“…We have reservations about the robustness of these newer delineations, especially for rural areas. Regardless, year-to-year Entrepreneurial % workforce self-employed DC [46] Businesses with 1-4 employees CBP [47] % creative class DC, SF 4 [48] Economic Total bank deposits FDIC [49] % population below poverty SAIPE [50] Unemployment rate CPS, BLS [51] Per capita income DC [52] Social Small manufacturing per 10,000 CBP [53] Associations per 10,000 CBP [54] Third places per 10,000 CBP [54] Voters in 2000 CQ Press [2] Adherents to civic denominations RCMS [53] Demographic % population identify as Black DC [55] % population identify as Hispanic DC [56,57] % adult population with � bachelor's DC [58] % population age 25 and younger PEP [59] % population age 65 and older DC [59] Notes: Table summarizes the example variables included in this article by ecological domain, its source, and related literature. We impute suppressed values of the CBP using [60], which [61] show reduces measurement error over common alternatives.…”