Out of Sight, Out of Mind: Nearby Branch Closures and Small Business Growth

Abstract

Since 2010, the total number of commercial bank branches in the United States has fallen by about 20%. Do branch closures meaningfully affect economic activity? We investigate the impact of branch closures on small businesses, whose credit access may be facilitated through local relationships with bankers. We use exogenous variation in closures related to mergers and acquisitions to show that closures of nearby branches decrease small business employment growth and entry. Our results are robust to variations in our measure of employment, proximity, and construction of the instrument. Altogether, our analysis highlights the importance of local branches to small businesses.

Keywords: JEL classifications: E32, E44. D22, D53, G21, J23, L25 Credit access, small businesses, firm growth, branch closures, bank mergers, Longitudinal Business Database