We propose a heteroscedastic regression model to identify the determinants of the dispersion in interest rates on loans granted to small and medium sized enterprises. We interpret unexplained deviations as evidence of the banks' discretionary use of market power in the loan rate setting process....

A recent string of theoretical papers highlights the importance of geographical distance in explaining pricing and availability of loans to small firms. Lenders located in the vicinity of small firms have significantly lower monitoring and transaction costs, and hence considerable market power...