Does Market Size Structure Affect Competition? The Case of Small Business Lending
Allen N. Berger
University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center
Richard J. Rosen
Federal Reserve Bank of Chicago - Economic Research
Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance
Market size structure refers to the distribution of shares of different size classes of local market participants, where the sizes are inclusive of assets both within and outside the local market. We apply this new measure of market structure in two empirical analyses of the U.S. banking industry to address concerns regarding the effects of the consolidation in banking. Our quantity analysis of the likelihood that small businesses borrow from large versus small banks and our small business loan price analysis that includes market size structure as well as conventional measures yield very different findings from most of the literature on bank size and small business lending. Our results do not suggest a significant net advantage or disadvantage for large banks in small business lending overall, or in lending to informationally opaque small businesses in particular. We argue that the prior research that excluded market size structure may be misleading and offer some likely explanations of why our results differ.
Number of Pages in PDF File: 31
Keywords: Banks, small business, mergers, relationship lending, size structure, loan prices
JEL Classification: G21, G28, G34, L11
Date posted: October 14, 2001
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