The Ability of Banks to Lend to Informationally Opaque Small Businesses
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 s...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/08/1561491/ability-banks-lend-informationally-opaque-small-businesses http://hdl.handle.net/10986/19567 |
| Summary: | 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. |
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