Bank Ownership Structure, SME Lending and Local Credit Markets
INE PAN Working Paper Series
53 Pages Posted: 18 Aug 2014 Last revised: 28 Aug 2014
Date Written: August 17, 2014
In this paper, by employing a novel approach, we study the relationship between bank type and small-business lending in a post-transition country. Using a unique dataset on bank branches and firm-level data, we find that local cooperative banks lend more to small businesses than do large domestic banks and foreign-owned banks, even when controlling for the financial situation of the cooperative banks. Additionally, our results suggest that cooperative banks provide loans to small businesses at lower costs than foreign-owned banks or large domestic banks. Finally, we show that small and medium-sized firms perform better in counties with a large number of cooperative banks than in counties dominated by foreign-owned banks or large domestic banks. Our results are important from a policy perspective, as they show that foreign bank entry and industry consolidation may raise valid concerns for small firms in developing countries.
Keywords: small-business lending, cooperative banks, foreign banks, post-transition countries
JEL Classification: G21, G28
Suggested Citation: Suggested Citation