SMEs and Access to Bank Credit: Evidence on the Regional Propagation of the Financial Crisis in the UK

56 Pages Posted: 14 Jul 2015

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Kent Matthews

Cardiff University Business School

Tianshu Zhao

University of Stirling - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 30, 2015

Abstract

We study the sensitivity of banks’ credit supply to small and medium size enterprises (SMEs) in the UK to banks’ financial condition before and during the financial crisis. Employing unique data on the geographical location of all bank branches in the UK, we connect firms’ access to bank credit to the financial condition (i.e., bank health and the use of core deposits) of all bank branches in the vicinity of the firm over the period 2004-2011. Before the crisis, banks’ local financial conditions did not influence credit availability irrespective of the functional distance (i.e., the distance between bank branch and bank headquarters). However, during the crisis, we find that SMEs with in their vicinity banks that have stronger financial condition face greater credit availability when the functional distance is low. Our results point to a “flight to headquarters” effect during the financial crisis.

Keywords: financial crisis, credit supply, flight to headquarters, flight to quality, bank organization

JEL Classification: G210, G290, L140

Suggested Citation

Degryse, Hans and Matthews, Kent and Zhao, Tianshu, SMEs and Access to Bank Credit: Evidence on the Regional Propagation of the Financial Crisis in the UK (June 30, 2015). CESifo Working Paper Series No. 5424. Available at SSRN: https://ssrn.com/abstract=2630550

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kent Matthews

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5855 (Phone)
+44 29 2087 4419 (Fax)

Tianshu Zhao

University of Stirling - Department of Economics ( email )

Stirling, FK9 4LA
United Kingdom

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