Credit Unions, Consolidation and Small Business Lending: Evidence from Canada

Morgan, Horatio M. (2013): Credit Unions, Consolidation and Small Business Lending: Evidence from Canada.

Abstract

This study examines how consolidation activity in the credit union system may impact small business lending. Drawing on Canadian provincial-level data over the period 1992-2009, it provides systematic evidence which suggests that the size of credit unions has a statistically significant negative effect on the rate of new business formation. While the magnitude of this negative effect was found to be very small when the degree of competition was low, it grew as competition intensified in the credit union system. Meanwhile, the size of the federally chartered banking sector was found to have a statistically significant, but economically insignificant negative effect on the rate of new business formation. This result was not affected by consolidation activity in the credit union system. These findings suggest that it is the intensification of competition that most acutely undermines small business lending, and by extension, new business formation in a concentrated credit union system.

• Item Type: MPRA Paper
• Language: English
• Keywords: Competition, Consolidation, Credit unions, New business formation, Relationship lending, Small business lending
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups

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