Abstract
This paper examines how legally restricted access to banking services affects small and medium-sized enterprises (SMEs) in a highly developed country. Using a mixed-method approach, we examine the unique situation of the US marijuana industry. The industry benefits from the superior institutional environment in terms of legal protection and the labor market of the United States. However, due to conflicting state and federal laws it has no legal access to banking. We find significant value effects around three major events that affected future access to banking. These results indicate that banking access remains desirable for the marijuana industry. A survey taken by marijuana SMEs provides insights into what banking services are considered most valuable. We find that marijuana SMEs have problems to obtain financing and handle their transactions largely in cash, resulting in transaction inefficiency and high security concerns. Thereby, we shed light on the value of banks for SMEs in developed countries. We complement the literature on financial transaction services by highlighting the value for SMEs in developed markets.
Highlights
Banks are a vital lifeline for the economy (Bernanke 2008)
Apart from the portfolio returns, we explore the individual securities to identify whether all firms are affected in a similar fashion or whether the aggregated results are only driven by a small number of marijuana firms
This result is logical because the dominant role of consulting firms in the marijuana industry is to Average abnormal returns t-stats Positive/no change/negative
Summary
Banks are a vital lifeline for the economy (Bernanke 2008). They supply capital to firms and facilitate the exchange of goods and services (Levine 1997, 2005; Levine et al 2000; Song and Thakor 2010). Capital markets and other non-bank financial intermediaries fulfill these functions, a large number of studies have shown that access to bank financing is still crucial for firms (e.g., Jayaratne and Strahan 1996; Bertrand et al 2007; Beck et al 2008 and Huber 2018). There are only a limited number of empirical findings from developing countries, most of which focus on the Kenyan mobile money market In this famous example, financial transaction services from M-Pesa are considered. Using the results of the survey, it will be identified if transaction services by traditional banks are still considered relevant
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