Urban Agglomerations and Firm Access to Credit

Abstract

The paper investigates whether firms have better access to bank credit in areas with a larger degree of urbanization. It uses bank-firm data drawn from the Credit Register maintained at the Bank of Italy to devise an indicator of ease of access to credit. The paper proposes an instrumental variable strategy that uses as instruments past population density and urbanization driven by considerations of political economy. The results show that urbanization affects access to credit positively for construction firms, whose collateral greatly benefits from thicker real estate markets. No impact is found for service and manufacturing firms.

Access to Capital Markets and the Geography of Productivity Leaders and Laggards

“…This is a well-known phenomenon even for access to banking. Several contributions show that firms in areas with higher agglomeration have better access to bank credit (Carmignani et al, 2019;Ganau, 2016;Lee and Brown, 2017;Mayer et al, 2021;Lee and Luca, 2019). Nonetheless, this geographical issue is certainly tighter for nonbank financing.…”

“…In this framework, local financial markets are especially important, given the high levels of geographic segmentation of these markets and the provincial concentration of high-performing firms. Although even this paper looks at the characteristics of the local banking sector, it examines how firm location is instrumental to the access of capital markets, while most contributions focus strictly on bank credit access (Moretti, 2014;Ganau, 2016;Carmignani et al, 2019). Distance is measured considering access to transportation networks, as recent literature has shown that it can have a direct effect on the quality of management (Baltrunaite and Karmaziene, 2021) where decisions to access capital markets are taken.…”

Access to capital markets and the geography of productivity leaders and laggards

“…This is a well-known phenomenon even for access to banking. Several contributions show that firms in areas with higher agglomeration have better access to bank credit (Carmignani et al, 2019;Ganau, 2016; 1 See also https://www.brookings.edu/blog/up-front/2022/01/20/gone-digital-technology-diffusion-in-the-digital-era/ 2…”

“…This is a well‐known phenomenon even for access to banking. Several contributions show that firms in areas with higher agglomeration have better access to bank credit (Carmignani et al, 2019; Ganau, 2016; Lee & Brown, 2017; Lee & Luca, 2019; Mayer et al, 2021). Nonetheless, this geographical issue is certainly tighter for nonbank financing.…”

“…In this framework, local financial markets are especially important, given the high levels of geographic segmentation of these markets and the provincial concentration of high‐ performing firms. Although even this paper looks at the characteristics of the local banking sector, it examines how firm location is instrumental to the access of capital markets, while most contributions focus strictly on bank credit access (Carmignani et al, 2019; Ganau, 2016; Moretti, 2014). Distance is measured considering access to transportation networks, as recent literature has shown that it can have a direct effect on the quality of management (Baltrunaite & Karmaziene, 2021) where decisions to access capital markets are taken.…”