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on Corporate Finance |
| By: | Ryan, Robert M. (Central Bank of Ireland); O'Toole, Conor M. (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland) |
| Abstract: | This paper examines the extent to which bank market power alleviates or magnifies SME credit constraints using a large panel dataset of more than 118,000 SMEs across 20 European countries over the period 2005-2008. To our knowledge, this is the first study to examine bank market power and SME credit constraints in an international, developed economy setting. More- over, our study is the first to address a number of econometric considerations simultaneously, in particular by controlling for the availability of profitable investment opportunities using a structural Q model of investment. Our results strongly support the market power hypothesis, namely, that increased market power results in increased financing constraints for SMEs. Ad- ditionally, we find that the relationship exhibits heterogeneity across firm size and opacity in a manner that suggests that the true relationship between bank market power and financing constraints might not be fully explained by the existing theory. Finally, we find that the effect of bank market power on financing constraints increases in financial systems that are more bank dependent. |
| Keywords: | Bank Competition, Bank Concentration, Financing Constraints, Tobin's Q, Firmlevel Investment |
| JEL: | G21 G31 G32 F34 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:03/rt/14&r=cfn |
| By: | Florian LEON |
| Abstract: | Whether competition helps or hinders small firms' access to finance is in itself a much debated question in the economic literature and in policy circles, especially in the developing world. Economic theory offers conflicting predictions and empirical contributions provide mixed results. This paper considers the consequences of interbank competition on credit constraints using firm level data covering 70 developing and emerging countries. In addition to the classical concentration measures, competition is assessed by computing three non-structural measures (Lerner index, Boone indicator, and H-statistics). The results show that bank competition alleviates credit constraints, while bank concentration measures are not robust predictors of a firm's access to finance. Findings highlight that bank competition not only leads to less severe loan approval decisions but also reduces borrowers' discouragement. In addition, a secondary result of this paper documents that banking competition enhances credit availability more by reducing prices than by increasing relationship lending. |
| Keywords: | Bank competition, access to credit, developing countries, discouraged borrower |
| JEL: | L10 G20 |
| URL: | http://d.repec.org/n?u=RePEc:cdi:wpaper:1570&r=cfn |
| By: | Coleman, Nicholas (Board of Governors of the Federal Reserve System (U.S.)); Feler, Leo (Johns Hopkins University SAIS) |
| Abstract: | While the finance literature often equates government banks with political capture and capital misallocation, these banks can help mitigate financial shocks. This paper examines the role of Brazil’s government banks in preventing a recession during the 2008-2010 financial crisis. Government banks in Brazil provided more credit, which offset declines in lending by private banks. Areas in Brazil with a high share of government banks experienced increases in lending, production, and employment during the crisis compared to areas with a low share of these banks. We find no evidence that lending was politically targeted or that it caused productivity to decline in the short-run. |
| Keywords: | Credit; financial crises; state-owned banks; local economic activity |
| Date: | 2014–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1099&r=cfn |
| By: | Correa, Ricardo (Federal Reserve Bank of New York); Goldberg, Linda S. (Federal Reserve Bank of New York); Rice, Tara (Federal Reserve Bank of New York) |
| Abstract: | While the balance sheet structure of U.S. banks influences how they respond to liquidity risks, the mechanisms for the effects on and consequences for lending vary widely across banks. We demonstrate fundamental differences across banks without foreign affiliates versus those with foreign affiliates. Among the nonglobal banks (those without a foreign affiliate), cross-sectional differences in response to liquidity risk depend on the banks’ shares of core deposit funding. By contrast, differences across global banks (those with foreign affiliates) are associated with ex ante liquidity management strategies as reflected in internal borrowing across the global organization. This intra-firm borrowing by banks serves as a shock absorber and affects lending patterns to domestic and foreign customers. The use of official-sector emergency liquidity facilities by global and nonglobal banks in response to market liquidity risks tends to reduce the importance of ex ante differences in balance sheets as drivers of cross-sectional differences in lending. |
| Keywords: | international banking; global banking; liquidity; transmission; internal capital market |
| JEL: | F42 G01 G21 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:676&r=cfn |
| By: | Oliver Hart; Luigi Zingales |
| Abstract: | What is so special about banks that their demise often triggers government intervention? In this paper we develop a simple model where, even ignoring interconnectedness issues, the failure of a bank causes a larger welfare loss than the failure of other institutions. The reason is that agents in need of liquidity tend to concentrate their holdings in banks. Thus, a shock to banks disproportionately affects the agents who need liquidity the most, reducing aggregate demand and the level of economic activity. In the context of our model, the optimal fiscal response to such a shock is to help people, not banks, and the size of this response should be larger if a bank, rather than a similarly-sized nonfinancial firm, fails. |
| JEL: | E41 E51 G21 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20207&r=cfn |
| By: | Kondo, Kazumine |
| Abstract: | This paper examines whether credit associations in Japanese regional lending markets compete on price now that Japanese financial authorities have replaced the convoy system of financial regulation with the principle of competition. Specifically, the effects of the market share of credit associations in regional markets on their lending rates are empirically investigated. Accordingly, we determined that credit associations compete with each other in regional lending markets by using two different proxies for the market share held by credit associations in a region. The first proxy was the credit associations’ share of all deposits in a region and the second was the credit associations’ share of all branch offices in a region. In addition, credit associations that face more intense competition from regional banks in regional markets were found to face more intense competition from other credit associations. |
| Keywords: | credit associations, abolition of convoy system of financial regulation, lending rates, market share of credit associations, regional lending market |
| JEL: | G21 |
| Date: | 2014–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56669&r=cfn |
| By: | Hryckiewicz, Aneta |
| Abstract: | The most recent crisis prompted regulatory authorities to implement directives prescribing actions to resolve systemic banking crises. Recent findings show that government intervention results in only a small proportion of bank recoveries. This study examines the reasons for this failure and evaluates the effectiveness of regulatory instruments, demonstrating that weaker banks are more likely to receive government support, that the support extended addresses banks’ specific issues, and that supported banks are more likely to face bankruptcy than non-supported banks. Therefore, government interventions must be sufficiently large, and an optimal banking recovery program must include a deep restructuring process. |
| Keywords: | Bank risk, business models, bank regulation, financial crisis, banking stability |
| JEL: | E58 G15 G21 G32 |
| Date: | 2014–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56730&r=cfn |
| By: | Jeon, Bang Nam (School of Economics); Lim, Hosung (Economic Research Institute); Wu, Ji (Department of Economics) |
| Abstract: | This paper examines the impact of foreign banks on the monetary policy transmission mechanism in the Korean economy during the period from 2000 to 2012, with a specific focus on the lending behavior of banks with different types of ownership. Using the bank-level panel data of the banking system in Korea, we present consistent evidence on the buffering impact of foreign banks, especially foreign bank branches including U.S. bank branches, on the effectiveness of the monetary policy transmission mechanism in Korea from the bank-lending channel perspective during the period of the global financial crisis of 2008-2009. One of the underlying reasons for the buffering effect of foreign bank branches is the existence of internal capital markets operated by multinational banks to overcome capital market frictions faced when the foreign banks finance their loans. |
| Keywords: | foreign banks; monetary policy transmission; financial crisis |
| JEL: | E52 G01 G21 |
| Date: | 2014–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:drxlwp:2014_007&r=cfn |