Does Credit Competition Affect Small-Firm Finance?
Article first published online: 7 MAY 2010
© 2010 The American Finance Association
The Journal of Finance
Volume 65, Issue 3, pages 861–889, June 2010
How to Cite
RICE, T. and STRAHAN, P. E. (2010), Does Credit Competition Affect Small-Firm Finance?. The Journal of Finance, 65: 861–889. doi: 10.1111/j.1540-6261.2010.01555.x
- Issue published online: 7 MAY 2010
- Article first published online: 7 MAY 2010
While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 80 to 100 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on the amount that small firms borrow.