Finance: Research, Policy and Anecdotes

Interesting papers in JBF - March 2021

One of the great pleasures as editor is to hit the Accept button.  There are quite many, but here is a small selection of recently published papers in the Journal of Banking and Finance that I found interesting, as they also closely relate to my own research.

 

In Financial structures, banking regulations, and export dynamics, Raoul Minetti and co-authors provide fresh evidence on the role of financial systems in countries’ export structures and contribute to the debate on bank- vs. market-based financial systems. Combining data on the structure of financial systems with data on the number and export sales of exporting firms and on exporters’ entry, exit and turnover rates on the 2-digit ISIC industry level for a large number of countries, the authors find that banks can promote the number of exporters more than decentralized financial markets. However, bank- oriented financial systems tend to reduce the dynamism of the export sector by slowing down the entry and exit of exporters. There is also evidence that it is especially domestic banks that slow down exporters’ turnover, while no such evidence emerges for foreign banks. Combining their data with another database, the Bank Regulation and Supervision database, they also show that in countries with lax bank regulation domestic banks tend to protect incumbent exporters, resulting in a higher concentration in the export sector.

 

In Local banks as difficult-to-replace SME lenders: Evidence from bank corrective programs, Iftekhar Hasan and co-authors provide evidence from Poland on the importance of local banks for SME funding. Following the Global Financial Crisis, a number of local cooperative banks got into financial trouble and had to go through restructuring programmes. The authors show that such troubled banks exhibit large declines in their loan and asset growth rates compared to other local banks. The effect of such restructuring on local SMEs, however, depends on the presence of other, healthy local banks in local banking markets. While the presence of healthy local cooperative banks off-sets the negative funding shocks for local SMEs, large commercial banks are unable to replace the lost lending from troubled local competitors. Overall, clear evidence that small local banks can be helpful for SME funding and thus – indirectly – evidence for relationship lending.

 

In Do loan subsidies boost the real activity of small firms?, Akos Horvath and Peter Lang investigate the effects of subsidized loans on the real activity of small firms, using credit and corporate registry data from Hungary and the setting of a large-scale subsidized loan program implemented in Hungary in 2013, which provided loans at 2.5% interest rate through commercial banks. Identification is tricky in such a setting, so the authors use credit registry queries as indicator of loan demand. The authors find that loan recipients invested about 58% more capital and employed about 8% more workers than if they had not received subsidized loans. Moreover, the positive effect becomes stronger over time, as firms have more time to utilize the additional funding. However, the authors also find significant heterogeneity both in the benefits from and access to subsidized loans: while firms with better bank relationships were more likely to receive subsidized loans, firms with lower net working capital and more severe credit constraints responded more strongly to them.