Distances and Small Business Credit Constraints: the French case

Deregulation and progress in information and communication technologies have increased the geographical expansion of banking structures and instruments. This makes banks operationally close to the borrowers. At the same time, banking industry consolidation have induced a geographical concentration of banking decision centers and strategic functions, leading to an increase of the functional distance that separates the decision center of a bank from its operational branches. The aim of this paper is to evaluate the impact of these two trends on SME lending. Our findings on French data show that increased functional distance and operational proximity are positively associated with the investment-cash flow sensitivity, considered as a measure of financing constraints. These adverse effects are particularly acute for small firms.