Market Size Structure and Small Business Lending: Are Crisis Times Different from Normal Times?*

Berger, Allen N.; Cerqueiro, Geraldo; Penas, Marı́a Fabiana

doi:10.1093/rof/rfu042

Cited by 69 publications

(41 citation statements)

References 34 publications

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“…First, in line with Degryse and Ongena (2005), we expect bank proximity to have a negative effect on information asymmetry and facilitate loan granting. Second, lending to start-ups tends to be higher in regions with more small banks (Berger et al, 2015). Third, as relationship lenders, small banks are better suited to ensure a governance role of debt, as they have been shown to have a comparative advantage in using soft information to alleviate the financial constraints of small businesses (Agarwal and Hauswald, 2010;Berger et al, 2017).…”

Section: Robustness Checks: Reduced Sample and Instrumental Variable mentioning

confidence: 99%

Debt signaling and outside investors in early stage firms

Epure

Guasch

2020

Journal of Business Venturing

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By imposing a market like governance and directing entrepreneurs towards professional management, debt, and especially business debt, can serve as a reliable signal for outside equity investors. Such signals of firm accountability can alleviate the stringent information asymmetry at the early stages of the firm, and become stronger for bank business debt, in the presence of personal debt, and in high capital industries. Using the Kauffman Firm Survey, we find evidence consistent with our hypotheses. Outside investors can rely on the governance role of debt and its underpinnings such as the bank-firm relationship. We also corroborate that young firms tend to focus on growth rather than profitability.

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Section: Robustness Checks: Reduced Sample and Instrumental Variable mentioning

confidence: 99%

Debt signaling and outside investors in early stage firms

Epure

Guasch

2020

Journal of Business Venturing

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“…Starting from the seminal paper by Udell (1989), this strand of the literature has recently known a new interest by the economists. Berger et al (2014) show that loan officers' incentives can negatively interact with internal rating systems. Scott (2006) finds that a faster turnover is generally negatively correlated with the production of soft information.…”

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confidence: 99%

The Right to Decide and the Effective Control Over Small Business Lending Decisions: A Look into Loan Officers’ Real Authority

et al. 2017

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A vast literature has emphasised that small banks are at a comparative advantage in lending to small businesses. In this paper, we show that, in addition to bank size, loan officers’ authority affects banks’ specialisation in small business lending. By using a unique dataset based on a survey of Italian banks, we find that loan officers’ authority has a key role in explaining bank specialisation in small business lending. In particular, banks that delegate more decision‐making power to their loan officers are more willing to lend to small firms than other banks. We use several proxies for measuring loan officers’ authority: their discretion in loan approval and in setting loan interest rates, the amount of money up to which they are allowed to lend autonomously, their turnover, their compensation schemes and the kind of information (soft vs. hard information) used both for screening and monitoring purposes.

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“…Petersen/ Rajan 2002, 2537. Furthermore, the use of credit scoring models weakened the importance of soft information and average distances were able to grow (Berger et al 2015). Yet, as there is non-codifyable information or information that cannot be transferred or quantified, spatial proximity to asses a borrower's economic situation could further play a major role in lending ( Agarwal/Hauswald 2010).…”

Section: Discussionmentioning

confidence: 99%

“…lower information asymmetry between borrower and lender decline with increasing age of the firm (Jackson/ Thomas 1995, 342). Firm age on the one hand is regarded as a proxy variable for the duration of the firm bank relationship (s. Berger et al 2014;Berger et al 2015). On the other hand, it can be employed to control for hold-up costs, as elder firms are unlikely to maintain only one banking relationship except when there is either no firm growth and/or hold-up costs.…”

Section: 1mentioning

confidence: 99%

The Effects of Spatial Distance on Loan Pricing in Relationship Lending

Zurek¹

2018

Die Unternehmung

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The spatial range between banks and their borrowers has commonly been considered as ambiguous in literature on borrower-lenderrelationships; On the one hand, a higher spatial separation increases informational costs, resulting in ceteris paribus higher interest rates charged by the lending bank. On the other hand, borrowers located closely to their lending banks are exposed to the local market power of the latter and therefore charged higher loan rates. With maintaining a single bank relationship, firms furthermore might occur liquidity risks. In this paper, the spatial distance between German firms and their banks is considered as impact on firms' lending rate. Employing Heckman's two-stage approach, there is strong evidence that distance has a positive impact on firms' lending rates in relationship lending. Die räumliche Entfernung zwischen einem Kreditnehmer und seiner Bank kann sich einerseits als eine Steigerung der mit Monitoring und Screening verbundenen Kosten äußern. Insbesondere ist dies bei Kreditnehmern relevant, die nur in geringerem Ausmaß über (kodifizierbare) Informationen verfügen, die leicht über weite Strecken transportiert werden können. Andererseits entscheidet die Entfernung zwischen Kreditnehmer und -geber maßgeblich über das Ausmaß lokaler Marktmacht der Bank. Im vorliegenden Beitrag wird die Auswirkung räumlicher Entfernung auf Kapitalkosten bei Anwendung des Relationship Lendings durch deutsche Unternehmen untersucht. Im Ergebnis des zweistufigen Heckman Verfahrens finden sich deutliche Hinweise auf eine positive Auswirkung räumlicher Entfernung auf die vom Unternehmen zu leistenden Kreditzinsen. charged higher interest rates by the lender (s. e.g. Petersen/Rajan 2002, 2543f; Degryse/ Ongena 2005, 234; Knyazeva/ Knyazeva 2012Knyazeva , 1195 Cenni et al. 2015, 251). The increase in interest rates on the other hand is only supposed to happen up to a certain location. At some point in space, other banks, located closer to the borrowing firm, are able to assign a loan to the borrower with lower interest rates due to lower incurring costs.Furthermore, it is commonly assumed that enterprises' opacity decreases with firm size due to a larger stock of employees, more reporting (obligations) and especially a longer history of the firm resulting in a better availability of firm specific data. Hence, large firms are able to provide hard facts as reliable information to their lenders when applying for credit and thus, in theory, ruling out distance to some high degree.Empirical Evidence on this topic is mixed. While e.g. Knyazeva/Knyazeva (2012) and Bellucci et al. (2013) find loan interest rates to increase with borrower-lender-distance, Degryse/Ongena (2005) and Agarwal/Hauswald (2010) find borrowers located closer to their lenders to be charged on average higher loan rates, due to local market power of the lending bank.This paper seeks to address whether geographical distances between banks and firms manifest in interest rates on firms' liabilities as lenders allocate their transport and inform...

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Market Size Structure and Small Business Lending: Are Crisis Times Different from Normal Times?*

Cited by 69 publications

References 34 publications

Debt signaling and outside investors in early stage firms

Debt signaling and outside investors in early stage firms

The Right to Decide and the Effective Control Over Small Business Lending Decisions: A Look into Loan Officers’ Real Authority

The Effects of Spatial Distance on Loan Pricing in Relationship Lending

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