Financial Constraints of Private Firms and Bank Lending Behavior

P Behr, Lars Norden, F Noth

Research output: Contribution to journalArticleAcademicpeer-review

62 Citations (Scopus)

Abstract

We investigate whether and how financial constraints of private firms depend on bank lending behavior. Bank lending behavior, especially its scale, scope and timing, is largely driven by bank business models which differ between privately owned and state-owned banks. Using a unique dataset on private small and medium-sized enterprises (SMEs) we find that an increase in relative borrowings from local state-owned banks significantly reduces firms¿ financial constraints, while there is no such effect for privately owned banks. Improved credit availability and private information production are the main channels that explain our result. We also show that the lending behavior of local state-owned banks can be sustainable because it is less cyclical and neither leads to more risk taking nor underperformance.
Original languageEnglish
Pages (from-to)3472-3485
Number of pages14
JournalJournal of Banking and Finance
Volume37
Issue number9
DOIs
Publication statusPublished - 2013

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