NDLI: Market power and relationships in small business lending

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Market power and relationships in small business lending

Content Provider	Library of Congress - Books/Printed Material
Author	Laderman, Elizabeth.
Temporal Coverage	2007
Abstract	The empirical research literature regarding the effects of market structure on small business lending has yielded ambiguous results. This paper empirically tests for the presence of countervailing effects of increases in market concentration on small business loan volume. Countervailing effects would be expected if both the traditional Structure, Conduct, Performance (SCP) paradigm of industrial organization and a paradigm whereby market power benefits the formation of lending relationships (the relationship hypothesis), are at work. Using Community Reinvestment Act (CRA) data on small loans to small businesses, it is found that, on average, across MSAs, SCP effects dominate. But, as predicted by the relationship hypothesis, the negative effects of increases in concentration on small business loan volume are weaker, the greater the presence of young firms and the higher the business failure rate. Relationship effects due to business failure appear to come from highly concentrated MSAs. Endogeneity concerns are further addressed with the estimation of a regression that separates out the effects of changes in the number of lenders from the effects of changes in the sum of squared deviations of market shares.
Language	English
Publisher	Federal Reserve Bank of San Francisco,
Publisher Place	San Francisco
Part of Series	Catalog
Requires	HTML5 supported browser
Access Restriction	Open
Subject Keyword	Asymmetric Information Banking Market Structure Small Business Lending
Subject Domain (in LCSH)	Banking;
Subject Domain (in LCSH)	market structure;
Subject Domain (in LCSH)	asymmetric information;
Subject Domain (in LCSH)	small business lending
Subject Domain (in LCC)	HB1
Content Type	Text
Resource Type	Book

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