Banking Market Concentration and Credit Availability to Small Businesses

This paper examines how banking market concentration affects small business credit. Based on an idea that line-of-credit (L/C) limit and L/C balance provide useful proxies for credit supply to and credit demand of a firm, we examine the effect of bank concentration on L/C limits and L/C balances. Using Heckman selection models to correct for sample selection, bank concentration is found to lower limits of L/Cs, where there was no statistically significant difference in L/C balances. We also find that small firms in concentrated banking markets have lower overall institutional debt-to-asset ratios