Financial Constraints of Private Firms and Bank Lending Behavior

Posted: 23 Nov 2010 Last revised: 7 Nov 2015

See all articles by Patrick Behr

Patrick Behr

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE)

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Felix Noth

Otto-von-Guericke-Universität Magdeburg; Halle Institute for Economic Research

Date Written: January 31, 2012

Abstract

We investigate whether and how financial constraints of private firms depend on bank lending behavior. Bank lending behavior, especially its scale, scope and timing, is largely driven by bank business models which differ between privately owned and state-owned banks. Using a unique dataset on small- and medium-sized enterprises (SMEs) we find that an increase in relative borrowings from local state-owned banks significantly reduces SMEs’ financial constraints, while there is no such effect for privately owned banks. Improved credit availability and private information production are the main channels that explain our result. We also show that the lending behavior of local state-owned banks is sustainable because it is less pro-cyclical and neither leads to more risk taking nor underperformance.

Keywords: Financial constraints, Bank loans, Bank business models, Relationship lending, Cyclicality

JEL Classification: D21, G21, G32, L21, L30

Suggested Citation

Behr, Patrick and Norden, Lars and Noth, Felix, Financial Constraints of Private Firms and Bank Lending Behavior (January 31, 2012). Journal of Banking & Finance, Volume 37, Issue 9, September 2013, Pages 3472-3485, Available at SSRN: https://ssrn.com/abstract=1713129 or http://dx.doi.org/10.2139/ssrn.1713129

Patrick Behr

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Brazil

Lars Norden (Contact Author)

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Felix Noth

Otto-von-Guericke-Universität Magdeburg ( email )

Universitätspl. 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/asp/person.asp?fnh&Lang=e&Abteilung=fin

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