Working Paper: CEPR ID: DP15015
Authors: Ralph De Haas; Liping Lu; Steven Ongena
Abstract: We interview 379 bank CEOs in 20 emerging markets to identify their banks’ main competitors. We show that banks are more likely to identify another bank as a main competitor in small-business lending when both banks are foreign owned or relationship oriented; when there exists a large spatial overlap in their branch networks; and when the potential competitor has fewer hierarchical layers. We then construct a novel bilateral competition measure at the locality level and assess how well it explains geographic variation in firms’ credit constraints. We show that intense bilateral bank competition tightens local credit constraints, especially for small firms, as competition may impede the formation of lending relationships.
Keywords: bilateral bank competition; geography of banking; credit constraints; small-business lending
JEL Codes: F36; F65; D22; D40; G21; R11; R30; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local banking landscape (G21) | availability of banks to firms (G21) |
| credit constraints for small firms (G21) | formation of long-term lending relationships (G21) |
| intense bilateral bank competition at the locality level (F65) | credit constraints for small firms (G21) |
| intense bilateral bank competition at the locality level (F65) | likelihood of firms being credit constrained (D22) |