The effect of bank branch closures on new firm formation: the Swedish case

Abstract

In this paper, the effect of local bank branch closures on new firm formation in Sweden is analysed using a panel database that captures the geographical locations of all Swedish bank branches in 2007 and 2013. The previous research has shown that the further a firm is located away from the bank, the higher the monitoring costs will be for the banks. Furthermore, an increase in the distance to the banks will also increase information asymmetry because of the banks’ eroded ability to collect and analyse soft information. Due to the high risks associated with the lack of information and uncertainty, banks might not be as willing to extend credits to a distant firm compared to a nearby firm. Using spatial econometric analysis at a municipal level, it is shown that bank proximity to firms, unemployment rate, industry structures, income growth, change in housing price and percentage of immigrants are vital for new firm formation in Sweden. From the spatial Durbin model with fixed effects, an increase in the weighted distance to the nearest bank branches is shown to affect new firm formation negatively.

The geography of banking: Evidence from branch closings

“…We estimate the probability a branch, active at the end of 2007, being closed between the end of 2007 and the end of 2014, by using the following LPM: 9 Our approach is very close to that followed by Martin-Oliver (2019) that also geocodes Spanish bank branches in 2007 and 2014, showing how distance among branched has increased in that period, amplifying the heterogeneity in access to financial services across locations. It is also followed by Ho and Berggren (2020), studying the Swedish case.…”

“…In particular, small business lending declines for several years, since lending to small and medium enterprises (SMEs) is information‐intensive and lender‐specific relationships are difficult to replace. Ho and Berggren (2020) investigate how bank branch closures affect new firms' formation and find that, because of the increased distance to branches, branch closures lower new firm formation.…”

Identificación de los ecosistemas de emprendimiento en México

“…Capital económico: Este se integra pro la disponibilidad de recursos que otorguen liquidez y una demanda potencial para las operaciones de un negocio, pudiera ser: El acceso a productos financieros de los emprendedores, y el nivel de renta de los b. Capital humano: Hace referencia al conocimiento, habilidades y experiencias acumuladas por la población, pero también se integra por el aprovechamiento de estos en un mercado laboral pertinente, y el acceso a programas de seguridad social que aseguren la salud y prosperidad de las personas; para un emprendedor este tipo de recursos son importantes, tanto para el manejo de su organización como para conseguir empleados con las competencias necesarias para la operación del negocio (Nicotra et al, 2018;Bonaccorsi et al, 2020;Ho y Berggren, 2020).…”

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

“…Almost every decade, it has been predicted that technology will render the physical presence of banks unnecessary (Petersen & Rajan, 1994, 2002). Concerns regarding loss of efficiency, the newest technological advancements, the regulatory environment and greater pressure from FinTech competitors have caused many countries to witness substantial redesign of their bank networks (Alessandrini et al, 2009a; Galardo et al, 2021; Ho & Berggren, 2020).…”

“…In addition, the bank branch often fulfils other important roles aside from its core function, such as contributing to the accumulation of regional social capital (Calcagnini et al, 2019). Several studies have recently showed that bank branch closing is estimated to have an adverse effect on SMEs lending (Nguyen, 2019), household financial situations (Tranfaglia, 2018) or firm formation (Ho & Berggren, 2020).…”