The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act

49 Pages Posted: 18 Feb 2022

See all articles by Panagiotis Avramidis

Panagiotis Avramidis

Alba Graduate Business School, The American College of Greece

George Pennacchi

University of Illinois

Konstantinos Serfes

Drexel University

Kejia Wu

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2022

Abstract

This paper analyzes how bank regulation that promotes greater access to credit impacts the financing of targeted small firms. It develops a model where banks compete with trade creditors to fund small firms and applies it to study the effects of the Community Reinvestment Act (CRA). The empirical tests reveal that a CRA-induced increase in bank loans reduces small firms’ use of relatively expensive trade credit. The effect is more profound in low- and medium-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries.

Keywords: Competition, Regulation, Trade credit, Small business loans

JEL Classification: G14, G21, L13, L50, L49

Suggested Citation

Avramidis, Panagiotis and Pennacchi, George G. and Serfes, Konstantinos and Wu, Kejia, The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act (February 1, 2022). FRB of Philadelphia Working Paper No. 22-6, Available at SSRN: https://ssrn.com/abstract=4037840 or http://dx.doi.org/10.21799/frbp.wp.2022.06

Panagiotis Avramidis (Contact Author)

Alba Graduate Business School, The American College of Greece ( email )

Xenias 6-8
Athens, Athens 11528
Greece

George G. Pennacchi

University of Illinois ( email )

4041 BIF, Box 25
515 East Gregory Drive
Champaign, IL 61820
United States
217-244-0952 (Phone)

HOME PAGE: http://https://giesbusiness.illinois.edu/profile/george-pennacchi

Konstantinos Serfes

Drexel University ( email )

3220 Market Street
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

Kejia Wu

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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