How Important are Local Community Banks to Small Business Lending? Evidence from Mergers and Acquisitions

Posted: 6 Jul 2018 Last revised: 21 Feb 2019

See all articles by Julapa Jagtiani

Julapa Jagtiani

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ramain Quinn Maingi

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Date Written: 2018-06-29

Abstract

We investigate the shrinking community banking sector and the impact on local small business lending (SBL) in the context of mergers and acquisitions. From all mergers that involved community banks, we examine the varying impact on SBL depending on the local presence of the acquirers’ and the targets’ operations prior to acquisitions. Our results indicate that, relative to counties where the acquirer had operations before the merger, local SBL declined significantly more in counties where only the target had operations before the merger. This result holds even after controlling for the general local SBL market or local economic trends. These findings are consistent with an argument that SBL funding has been directed (after the mergers) toward the acquirers’ counties. We find even stronger evidence during and after the financial crisis. Overall, we find evidence that local community banks have continued to play an important role in providing funding to local small businesses. The absence of local community banks that became a target of a merger or acquisition by nonlocal acquirers has, on average, led to local SBL credit gaps that were not filled by the rest of the banking sector.

Keywords: community banks, small business lending, bank mergers

JEL Classification: G21, G28, G34

Suggested Citation

Jagtiani, Julapa and Maingi, Ramain Quinn, How Important are Local Community Banks to Small Business Lending? Evidence from Mergers and Acquisitions (2018-06-29). FRB of Philadelphia Working Paper No. 18-18. Available at SSRN: https://ssrn.com/abstract=3205921 or http://dx.doi.org/10.21799/frbp.wp.2018.18

Julapa Jagtiani (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Ramain Quinn Maingi

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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