The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act

Abstract

This paper analyzes how regulation that promotes greater access to bank credit, such as the Community Reinvestment Act (CRA), impacts the financing of small firms. It finds that when areas become CRA‐eligible, the likelihood of bank lending to local small firms increases and firms reduce late trade credit payments, consistent with loans allowing small firms to pay trade credit more promptly and avoid late payment fees. The effect is more profound in low‐ and moderate‐income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit‐dependent industries.

Commercial Bank Expansion and Environmental Pollution: Micro Evidence from Industrial Firms in China

“…Therefore, we only count the number of commercial bank branches within 5-30 km. It is important to note that this paper differs from Avramidis et al ( 2022) [46] and related literature in that we first identify whether a firm and a commercial bank branch are within the same county based on their latitude and longitude data and then calculate the geographical distance between the firm and the commercial bank institution within the same county to measure the number of commercial bank branches around the firm. This is because, in China, there is a clear segmentation of business between cities where the same bank branch is located, making it difficult for firms to access loans across cities (Chong et al, 2013) [17].…”

“…The core explanatory variable in this paper is commercial bank expansion (Br), which is measured by the number of commercial bank branches within a certain radius of the firm. Drawing on Avramidis et al (2022) [46], we determine the geographical distance between the firm and the commercial bank using latitude and longitude data and then count the number of commercial bank branches within a specified radius of the firm's location. Specifically, we calculated the number of commercial bank branches around the firm within radii of 5, 10, 15, 20, 25 and 30 km.…”