Bank market concentration, relationship banking, and small business liquidity
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This article examines two contrasting interpretations of how bank market concentration (Market Power Hypothesis) and banking relationships (Information Hypothesis) affect three sources of small firm liquidity (cash, lines of credit, and trade credit). Supportive of a market power interpretation, we find that in a highly concentrated banking market, small firms hold less cash, have less access to lines of credit, and are more likely to be financially constrained, use greater amounts of more expensive trade credit, and face higher penalties for trade credit late payment. We also find support for the information hypothesis: relationship banking improves small business liquidity, particularly in a concentrated banking market, thereby mitigating the adverse effects of bank market concentration derived from market power. Our results are robust to different cash, lines of credit, and trade credit measures and to alternative empirical approaches.
Han , L , Zhang , S & Greene , F 2017 , ' Bank market concentration, relationship banking, and small business liquidity ' , International Small Business Journal , vol. 35 , no. 4 , pp. 365-384 . https://doi.org/10.1177/0266242615618733
International Small Business Journal
Copyright © 2017 SAGE Publications. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1177/0266242615618733