Credit Environment and Small Business Dynamics: Evidence from Establishment-Level Data

47 Pages Posted: 6 Mar 2018 Last revised: 16 Aug 2019

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Mingzhu Tai

The University of Hong Kong - School of Economics and Finance

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: August 6, 2019

Abstract

Using the NETS database, which covers the universe of establishments in the U.S., we evaluate how shocks that improve credit conditions in a county affect small businesses in that county across different size groups. We find that positive shocks to the county credit environment stimulate the growth of relatively larger firms, but crowd out micro firms. To identify county-specific shocks, we exploit technology-driven deposit shocks and bank branch networks, and compute the extent to which banks in a county receive liquidity shocks through branch networks in other counties. Consistent with the credit view, we show that banks receiving a positive liquidity shock expand credit to larger firms, but not to micro firms.

Keywords: Credit Conditions, Networks, Small Business Dynamics, Employment

JEL Classification: G21, G28, G30, E24, Q40

Suggested Citation

Lin, Chen and Tai, Mingzhu and Xie, Wensi, Credit Environment and Small Business Dynamics: Evidence from Establishment-Level Data (August 6, 2019). Available at SSRN: https://ssrn.com/abstract=3133092 or http://dx.doi.org/10.2139/ssrn.3133092

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Mingzhu Tai

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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