Locally Owned Bank Concentration and New Business Start-Ups in Metropolitan, Micropolitan and Non-Core Rural Counties from 1970-2010

Access to financial capital is vital for the sustainability of the local business sector in metropolitan and nonmetropolitan communities. Recent research on the restructuring of the financial industry from local owned banks to... [ view full abstract ]

Access to financial capital is vital for the sustainability of the local business sector in metropolitan and nonmetropolitan communities. Recent research on the restructuring of the financial industry from local owned banks to interstate conglomerates has raised questions about the impact on local economies. More specifically, there is concern that the impact of this change has been disproportionately harmful to the vitality of rural economies.  In this paper we develop two hypotheses and examine the impact of bank ownership concentration (percent of banks that are locally owned) on new business formations in metropolitan, micropolitan and non-core rural counties. We employ fixed effects cross sectional time-series regression models for the 1970-2010 time frame.  We find that local bank concentration is positively related to business births in non-core rural counties, but that the benefits do not extend to business deaths and continuation.