The Ability of Banks to Lend to Informationally Opaque Small Businesses

By Allen N. Berger, L. Klapper, Greg Udell. 2001

1,060 citations recorded by the source corpus.

Consolidation of the banking industry is shifting assets into larger institutions that often operate in many nations. Large international financial institutions are geared toward serving large wholesale customers. How does this affect the banking system's ability to lend to informationally opaque small businesses? The authors test hypotheses about the effects of bank size, foreign ownership, and distress on lending to informationally opaque small firms, using a rich new data set on Argentinean banks, firms, and loans. They also test hypotheses about borrowing from a single bank versus borrowing from several banks. Their results suggest that large and foreign-owned institutions may have difficulty extending relationship loans to opaque small firms, especially if small businesses are delinquent in repaying their loans. Bank distress resulting from lax prudential supervision and regulation appears to have no greater effect on small borrowers than on large borrowers, although even small firms may react to bank distress by borrowing from multiple banks, despite raising borrowing costs and destroying some of the benefits of exclusive lending relationships.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/8981b3edfe536e1e30bb7fe8bf30b144eebb45da

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Citations in the corpus

Bank Competition and Firm Creation (2004, neutral): “Recent examples are Berger, Klapper, and Udell (2001) and Berger et al. (2002).”
Foreign bank entry and firms access to bank credit: Evidence from China (2010, background): “…2007; Detragiache et al., 2008).1 The paper also complements the growing empirical literature that studies the impact of foreign bank competition on domestic firms’ corporate finance and real outcomes in a within-country context (e.g., Berger et al., 2001; Haber and Musaccio, 2004; Mian, 2006).”
Foreign bank participation and access to credit across firms in developing countries (2006, background): “Berger et al. (2001) find that small businesses in Argentina were less likely than larger ones to receive credit both from large banks and from foreign banks in 1998.”
To what extent will the banking industry be globalized? A study of bank nationality and reach in 20 European nations (2002, background): “For example, large, foreign-owned banks appear to have problems supplying credit to informationally opaque small businesses (e.g., Berger, Klapper, and Udell 2001, Clarke, Cull, and Martinez Peria 2001).”
How do lending relationships affect access to credit and loan conditions in microlending (2011, neutral): “, 2009; Stanton, 2002), and have to be familiar with the local customs (Berger et al., 2001).”
The demand and supply of external finance for innovative firms (2013, neutral): “The nature and scope of these imperfections may vary together with the form of capital that is demanded and supplied, and with the agents’ ability to bridge information gaps (Myers et al., 1976; Berger et al., 2001; Berger and Udell, 1998; 2006; Gompers and Lerner, 1999; 2001).”
Understanding Banking Sector Globalization (2009, background): “Foreign banks in Argentina may have behaved significantly differently from local banks only when decision-making remained in foreign headquarters (Berger, Klapper, and Udell, 2001).”
Where Is Credit Due? Legal Institutions, Connections, and the Efficiency of Bank Lending in Vietnam (2009, background): “In some countries, recent consolidation of the financial industry has damaged these tight relationships, leading to more systematic risk in the banking sector and less capital reaching small firms (Berger et al. 1999; Berger et al. 2001; Giannetti andOngena 2005).”
Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia (2003, background): “This is consistent with Berger et al. (2001), which finds that foreign-owned banks in Argentina are less likely to lend to informationally opaque small businesses than domestically-owned banks.”