The Effects of Banks on 'Debt-Sensitive' Small Businesses

39 Pages Posted: 2 Aug 2006

See all articles by Allen N. Berger

Allen N. Berger

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

Philip Ostromogolsky

Yale University

Date Written: July 2006


We try to identify which small businesses are most "debt sensitive," or most likely to be affected by banking market conditions. For our primary debt sensitivity categories, we hypothesize that bank conditions are most likely to have significant effects on firms in size classes and industries that are "on the bubble" for credit availability (probability of credit close to 0.50), rather than those with "relatively easy" or "relatively difficult" access to credit (probability much higher or lower, respectively). Our secondary classifications also require that loans fund a substantial proportion of assets for the firms in the category that have loans. We test the hypotheses by using a comprehensive data set of U.S. small businesses by size class and industry matched with variables measuring bank market power, market structure, and efficiency in the firm's local markets. We find the data to be consistent with the hypotheses, but not all of the bank conditions are significant. The support for the hypotheses is strongest using the secondary classifications.

Keywords: Banks, Small Business, Concentration, Community Banking, Efficiency

JEL Classification: G21, G28, L11, O33

Suggested Citation

Berger, Allen N. and Ostromogolsky, Philip, The Effects of Banks on 'Debt-Sensitive' Small Businesses (July 2006). Available at SSRN: or

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

Philip Ostromogolsky

Yale University ( email )

Yale School of Management
135 Prospect Street
New Haven, CT 06510
United States


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