Alberto Zazzaro

Does Gender Matter in Bank-Firm Relationships? Evidence from Small Business Lending

In this paper we study the relevance of the gender of the contracting parties involved in lending. We show that female entrepreneurs face tighter access to credit, even though they do not pay higher interest rates. The effect is independent of the information available about the borrower and holds if we control for unobservable individual effects. The gender of the loan officer is also important: we find that female officers are more risk-averse or less self-confident than male officers as they tend to restrict credit availability to new, unestablished borrowers more than their male counterparts.

Competition and relationship lending: Friends or foes?

Recent empirical findings by Elsas (2005) and Degryse and Ongena (2007) document a U-shaped effect of market concentration on relationship lending which cannot be easily accommodated by the investment and strategic theories of relationship lending. In this paper, we suggest that this non-monotonicity can be explained by looking at the organizational structure of local credit markets. We provide evidence that marginal increases in interbank competition are detrimental to relationship lending in markets where large and out-of-market banks are predominant. On the contrary, where relational-based lending technologies are al-ready widely in use in the market by a large group of small mutual banks, an increase in competition may drive banks to further cultivate their extensive ties with customers.

The geography of banking power: role of function distance

In this paper we analyse the new geography of the Italian banking system on the basis of the integration pressures of recent years. The analysis of the evolution of thebanking system is focused on the concept of distance. In particular, we not only refer to the traditional distance between bank and customers, that is the operationaldistance, but also to the distance between decision centres of banks and local systems, that we define as functional distance. The focus of the paper is on the effect that functional distance (or proximity) has on the performance of banks in terms of credit allocation, efficiency, and profitability. Our regression analysis proves that functional proximity has asymmetric territorial effects on the banks performance. Its beneficial effects are more evident in the less developed southern regions, than in the more advanced Centre-North regions of Italy.

SINGLE PERIOD ANALYSIS: FINANCIAL MARKETS, FIRMS' FAILURES AND CLOSURE OF THE MONETARY CIRCUIT

The seminal contributions of Augusto Graziani (1982; 1984) to the monetary theory of production make it clear that the realisation of monetary gross profits of firms at the macroeconomic level represents the most intricate and awkward puzzle in the circuit approach. The analytical reason for this puzzle is simple: assuming a single macro period, isolated from those that precede and follow it, and a private pure credit economy, closed to foreign exchanges, the quantity of means of payment introduced into the economy at the beginning of the period coincides with the total debt of firms and with the wage bill; hence the total monetary revenues realised by the set of firms at the closure of the period will at most be equal to their initial debt and cannot account either for the existence of monetary profits or for the monetary payment of bank interest.1

The Allocation of Entrepreneurial Talent under Imperfect Lending Decisions

An argument commonly adduced to explain differences in economic development among regions is the scarcity of entrepreneurial talent in less developed regions. This paper disputes this idea, pointing out that in less developed regions the scant diffusion of innovative entrepreneurial activities is essentially due to the allocation of existing talent to traditional or non-entrepreneurial activities rather than to a lack of entrepreneurial spirit. In particular, this paper argues that in peripheral and less developed regions the greater difficulties encountered by banks in correctly evaluating entrepreneurial talent may be a major factor in preventing existing entrepreneurial talent from being fully exploited.

Group reputation and persistent (or permanent) discrimination in credit markets

Abstract Belonging to a group (i.e. industry, geographic area, ethnic group) of borrowers seems to play a crucial role in determining credit availability and interest rates. In this paper, we give a rationale for this phenomenon, based on incomplete information. Assuming that groups’ quality changes over time and that banks estimate it on the basis of the past observed default rates, a result of persistent group discrimination is derived. If group reputation and high interest rates affect the firms’ real quality by hampering the development of entrepreneurial skills or by inducing good firms to migrate, the initial discrimination may even cause permanent effects on the economy.

Who Captures Who? Long-Lasting Bank Relationships and Growth of Firms

The theoretical literature has identified potential benefits and costs of close bank-firm relationships for both parties, suggesting possible reasons for firms being captured by banks and vice versa. In this paper we empirically explore the effects of long-lasting credit relationships on employment and asset growth of a large sample of Italian manufacturing firms in the period 1998-2003. The main findings are that relationship lending hampers the efforts of small firms to increase their size (especially in terms of employees), while it mitigates the negative growth of troubled, medium-large enterprises, thus supporting the hypothesis that small firms are captured by banks which, in turn, are captured by large firms.

Geographical Organization of Banking Systems and Innovation Diffusion

The empirical literature is largely supportive of the importance of financial constraints and identifies local banking development and relationship lending as possible determinants of firms’ propensity to innovate. In this chapter, we argue that the spatial organization of banking systems and the distance of local branches from banks’ decisional centers are major factors influencing the effectiveness in collecting and processing soft information on local innovative firms. We provide evidence showing that, while branch density and the length of credit relationships have a positive causal effect on innovation when considered singularly, after controlling for the functional distance between the banking system and the local economy they lose statistical significance in favor of the latter. In this perspective, our results suggest that the geographical organization of banks and the spatial distribution of their headquarters represent key variables for local development.

Do Inter-Firm Networks Make Access to Finance Easier? Issues and Empirical Evidence *

Does participation in inter-firm networks make access to credit easier for firms? Is finance a motivation driving the formation of inter-firm networks? During the last twenty years these two questions have been hotly debated by economists both theoretically and empirically. In this paper, we selectively review the literature on inter-firm networking, internal capital markets and access to external credit.

Are Antitrust Fines Friendly to Competition? An Endogenous Coalition Formation Approach to Collusive Cartels

A well-established result of the theory of antitrust policy is that it might be optimal to tolerate some degree of collusion among firms if the Authority in charge is constrained by limited resources and imperfect information. However, few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of a positive (expected) antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the social optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and equilibrium binding agreements. Then we extend the analysis to the case of n symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.