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Does Market Size Structure Affect Competition? The Case of Small Business Lending

31 Pages Posted: 14 Oct 2001  

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Date Written: July 2005

Abstract

Market size structure refers to the distribution of shares of different size classes of local market participants, where the sizes are inclusive of assets both within and outside the local market. We apply this new measure of market structure in two empirical analyses of the U.S. banking industry to address concerns regarding the effects of the consolidation in banking. Our quantity analysis of the likelihood that small businesses borrow from large versus small banks and our small business loan price analysis that includes market size structure as well as conventional measures yield very different findings from most of the literature on bank size and small business lending. Our results do not suggest a significant net advantage or disadvantage for large banks in small business lending overall, or in lending to informationally opaque small businesses in particular. We argue that the prior research that excluded market size structure may be misleading and offer some likely explanations of why our results differ.

Keywords: Banks, small business, mergers, relationship lending, size structure, loan prices

JEL Classification: G21, G28, G34, L11

Suggested Citation

Berger, Allen N. and Rosen, Richard J. and Udell, Gregory F., Does Market Size Structure Affect Competition? The Case of Small Business Lending (July 2005). Available at SSRN: https://ssrn.com/abstract=286912 or http://dx.doi.org/10.2139/ssrn.286912

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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