Distance Still Matters: Local Bank Closures and Credit Availability

10 Pages Posted: 12 Dec 2019 Last revised: 27 Aug 2020

See all articles by Anders Kärnä

Anders Kärnä

Research Institute of Industrial Economics (IFN); Örebro University - Department of Economics

Agostino Manduchi

Jonkoping University - Jonkoping International Business School (JIBS)

Andreas Stephan

Linnaeus University

Date Written: November 19, 2019

Abstract

In recent years, commercial banks have substantially reduced the number of their
branch offices. We address the question of whether or not the increased distance to
lenders caused by branch office closures translates into a lower credit supply for small
and medium sized enterprises (SMEs). We use a unique dataset based on 33,000 loan
contracts from a state-owned Swedish bank designed to support credit-constrained
SMEs, and relate loan size and the interest rate to the number of nearby commercial
bank offices. We use an IV strategy to account for potential endogeneity of the number
of banks in a region. In line with previous studies, we find that interest rates increase
with distance, while loan size decreases with distance. Thus, a larger number of local
bank offices increases the local credit supply, and thereby reduces credit constraints of
nearby SMEs.

Keywords: Credit Constraints, Relationship Banking, State Owned Bank, Small Business

JEL Classification: L52, O38, H81, L26, G28

Suggested Citation

Kärnä, Anders and Manduchi, Agostino and Stephan, Andreas, Distance Still Matters: Local Bank Closures and Credit Availability (November 19, 2019). IFN Working Paper No. 1305, 2019, Available at SSRN: https://ssrn.com/abstract=3493023 or http://dx.doi.org/10.2139/ssrn.3493023

Anders Kärnä

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Örebro University - Department of Economics ( email )

SE-70182 Orebro
SWEDEN

Agostino Manduchi

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Jönköping, 55111
Sweden

Andreas Stephan (Contact Author)

Linnaeus University ( email )

Universitetsplatsen 1
Växjö, 351 95
Sweden

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