Local Banking Market Structure, External Financial Dependence and Economic Activity : A New Assessment of the Benefits of Relationship Banking

This paper provides new evidence on the benefits of relationship banking. Using a unique bank branch-level dataset covering 96 French counties (departments) from 2005 to 2013, we show that higher market share of regional banks and a stronger presence of geographically-focused banks significantly impact local employment, foster firm creation and stimulate SMEs performance, even after controlling for times, county level and industry level effects. Further exploring the link between local banking market structure and real economic activity, we find that these benefits are altered by differences in sectors' external financial dependence. Stronger presence of regional banks or of geographically-focused banks positively impact SMEs performance in sectors which are highly-dependent on external finance