Youth, Adolescence, and Maturity of Banks:  Credit Availability to Small Business in an Era of Banking Consolidation

Robert DeYoung
Lawrence G. Goldberg
Lawrence J. White

         This paper addresses the relationship between the aging process at new and relatively young banks and the tendency of banks to make loans to small businesses.  Defining small business loans as C&I loans that are under $1 million in size, we analyze a sample of banks that had assets of less than $500 million in assets for the years 1993-1996 and that were 25 years of age or younger.
        We find, as have earlier studies, that banks' proclivities for small business lending are negatively related to their age and to their size.  We proceed much farther, however, by introducing a number of additional explanatory variables.  We find that small business lending is negatively related to its recent growth rate and to a bank's being part of a MBHC.  Also, small business lending is positively related to higher concentration rates in urban areas but is negatively related to higher concentration in rural areas.  Despite the inclusion of these additional variables, the negative effects of a bank's age on its small business lending persist, albeit with reduced magnitudes.
        We also divide our sample into dichotomous groups and examine the differences between the groups.  The divisions encompass "very young" versus "somewhat older" banks, freestanding versus MBHC banks, and urban versus rural banks.  The results for these sub-samples generally support our overall findings.

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