A more complete conceptual framework for financing of small and medium enterprises

The authors propose a more complete conceptual framework for analysis of credit availability for small and medium enterprises (SMEs). In this framework, lending technologies are the key conduit through which government policies and national financial structures affect credit availability. They emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies. These technologies, in turn, have important effects on SME credit availability. Financial structures include the presence of different financial institution types and the conditions under which they operate. Lending technologies include several transactions technologies, plus relationship lending. The authors argue that the framework implicit in most of the literature is oversimplified, neglects key elements of the chain, and often yields misleading conclusions. A common oversimplification is the treatment of transactions technologies as a homogeneous group, unsuitable for serving informationally opaque SMEs, and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque SMEs.Banks&Banking Reform,Financial Intermediation,Investment and Investment Climate,Economic Theory&Research,Financial Crisis Management&Restructuring

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 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.Payment Systems&Infrastructure,Financial Intermediation,Financial Crisis Management&Restructuring,Banks&Banking Reform,Decentralization,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Economic Adjustment and Lending,Economic Theory&Research

Further evidence on the link between finance and growth: An international analysis of community banking and economic performance

We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993–2000 on 49 nations. Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows. The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks.banks, community banking, SMEs, financial development, economic growth, international

Further evidence on the link between finance and growth: An international analysis of community banking and economic performance

We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993–2000 on 49 nations. Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows. The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks.banks; community banking; SMEs; financial development; economic growth; international

Further evidence on the link between finance and growth: An international analysis of community banking and economic performance

We seek to contribute to both the finance-growth literature and the community banking literature by testing the effects of the relative health of community banks on economic growth and investigating potential transmission mechanisms for these effects using data from 1993–2000 on 49 nations. Data from both developed and developing nations suggest that larger market shares and higher efficiency rankings for small, private, domestically owned banks are associated with better economic performance, and that the marginal benefits of larger shares are greater when the banks are more efficient. Only mixed support is found for hypothesized transmission mechanisms through improved financing for SMEs or greater overall bank credit flows. The data from developing nations is also consistent with favourable economic effects from foreign-owned banks, but unfavourable effects from state-owned banks.banks, community banking, SMEs, financial development, economic growth, international