Access to Banking and Its Value in Developed Countries: Evidence from the U.S. Marijuana Industry

Abstract

How does access to banking services affect small firms in highly developed countries? We exploit the unique legal situation of the U.S. marijuana industry that benefits from the superior institutional environment in terms of legal protection and the labor market but has no access to bank lending or to bank payment systems.

We find significant value effects around two major events that affected marijuana firms' access to banking services. A survey taken by marijuana firms complements the event studies' findings. It provides insights into the precise channels that cause these capital market reactions. We find that firms without access to banking not only have difficulties attaining loans but are also hindered by their impeded access to payment systems.

Banks are still valuable and cannot be substituted by other financial intermediaries. We complement the literature by highlighting the relevance of financial transaction services for young firms in developed markets.

Keywords: Banking, Access to Banking, Financial Development, Marijuana-Related Businesses

JEL Classification: F43, G21, O16