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Proximity in bank-borrower relationships : are small and newly established firms hit harder by bank branch closures?

Johannessen, Ragnhild Grønn; Skarstein, Frida Lobenz
Master thesis
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URI
http://hdl.handle.net/11250/2560251
Date
2018
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  • Master Thesis [3258]
Abstract
In this thesis, we use an empirical approach to provide evidence on the topic of relationship

lending, by analysing if small and newly established firms are hit harder by a regional bank

withdrawal. We use comprehensive data from the Norwegian banking market, containing

information on 127 banks and approximately 70,000 firms. We find that small and newly

established firms receive an increase in average interest rate of 2 percentage points after a

bank withdrawal. This is 1.7 percentage points higher than for large and mature firms. Small

and newly established firms also experience a decrease in debt ratio of 0.027, while the

decrease is even more substantial for large and mature firms. Our findings indicate that small

and newly established firms are hit harder in terms of increased interest rate, while the

decrease in debt ratio could be caused by changes in credit supply or demand. The effects

imposed on small and newly established firms do not seem to affect the firms’ growth,

indicating that firms are able to withstand the increased interest rate.

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