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Banking proximity and firm performance. The role of small businesses, community banks and the credit cycle

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  • Daniela Bragoli
  • C. Burlina
  • F. Cortelezzi
  • G. Marseguerra

Abstract

This article analyses the link between banking geography and firm performance, i.e. whether the proximity within banks and between banks and borrowers has a positive impact on firms’ Returns on Assets (ROA).Using a unique dataset of Italian manufacturing firms and banks from 2006 to 2011 and an instrumental variable approach to account for endogeneity, we investigate whether this effect increases with the presence of community banks and small businesses and whether the relationship changes over the credit boom and bust, which preceded and followed the Lehman Brothers collapse.We show that geographical proximity matters for firm performance especially when the presence of community banks is high and when considering small (micro) firms. During the credit boom, both functional distance and operational proximity seem to matter, whereas, during the credit crunch, operational proximity has a more relevant role compared to functional distance in becoming an important driver to increase firm’s performance.

Suggested Citation

  • Daniela Bragoli & C. Burlina & F. Cortelezzi & G. Marseguerra, 2022. "Banking proximity and firm performance. The role of small businesses, community banks and the credit cycle," Applied Economics, Taylor & Francis Journals, vol. 54(57), pages 6605-6624, December.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:57:p:6605-6624
    DOI: 10.1080/00036846.2022.2073959
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    Cited by:

    1. Adabor, Opoku & Mishra, Ankita, 2023. "The resource curse paradox: The role of financial inclusion in mitigating the adverse effect of natural resource rent on economic growth in Ghana," Resources Policy, Elsevier, vol. 85(PA).
    2. Pedro Manuel Nogueira Reis & António Pedro Soares Pinto, 2022. "How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms," IJFS, MDPI, vol. 10(4), pages 1-29, October.
    3. Fang, Francis Haoyu & Vlaicu, Razvan, 2024. "Local Banking Supply and Private Firm Activity: Evidence from Branch Closures," IDB Publications (Working Papers) 13645, Inter-American Development Bank.

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