Abstract
This paper investigates the relationship between local banking structures, SME access to debt financing and SME performance. Using a unique dataset on bank branch locations in Poland and county-level and firm-level data, we conclude that a strong position for local, cooperative banks facilitates access to bank financing, lowers financial costs and boosts investment and growth for SMEs. Moreover, counties where cooperative banks hold a strong position are characterized by a quicker pace of new firm creation. However, only local banking markets dominated by supra-local, foreign and domestic banks appear to exert pressure on SMEs to increase efficiency. Our results thus empirically document the advantages and disadvantages of the relationship and arms-length banking models. As a consequence, our findings are important from a policy perspective, as they show that foreign bank entry and industry consolidation may raise valid concerns for SME development prospects in emerging economies.
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