Do Small Businesses Still Prefer Community Banks

By Allen N. Berger, William Goulding, Tara Rice. 2013

177 citations recorded by the source corpus.

We formulate and test hypotheses about the role of bank type – small versus large, single-market versus multimarket, and local versus nonlocal banks – in banking relationships. The conventional paradigm suggests that “community banks” – small, single-market, local institutions – are better able to form strong relationships with informationally opaque small businesses, while “megabanks” – large, multimarket, nonlocal institutions – tend to serve more transparent firms. Using the 2003 Survey of Small Business Finance (SSBF), we conduct two sets of tests. First, we test for the type of bank serving as the “main” relationship bank for small businesses with different firm and owner characteristics. Second, we test for the strength of these main relationships by examining the probability of an exclusive relationship and main bank relationship length as functions of main bank type and financial fragility, as well as firm and owner characteristics. The results are often not consistent with the conventional paradigm, perhaps because of changes in lending technologies and deregulation of the banking industry.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/bf6f73702b6a183e64341a4a30420b76f7b99e4d

Citations in the corpus

• Bank Insolvency Risk and Z-Score Measures: A Refinement (2015, unknown): “Berger et al. (2014), Delis et al. (2014), Fang et al. (2014), Fu et al. (2014), Hakenes et al. (2014); Beck et al. (2013), Bertay et al. (2013), DeYoung and Torna (2013). 3Note, however, that it is possible, if uncommon, to calculate Z-score measures using market information as well.”