Article | Journal of the European Economic Association | April – May 2010

Banking Deregulations, Financing Constraints and Firm Entry Size

by William R. Kerr and Ramana Nanda

Abstract

We examine the effect of US branch banking deregulations on the entry size of new firms using micro-data from the US Census Bureau. We find that the average entry size for startups did not change following the deregulations. However, among firms that survived at least four years, a greater proportion of firms entered either at their maximum size or closer to the maximum size in the first year. The magnitude of these effects were small compared to the much larger changes in entry rates of small firms following the reforms. Our results highlight that this large-scale entry at the extensive margin can obscure the more subtle intensive margin effects of changes in financing constraints.

Keywords: Business Startups; Financing and Loans; Governing Rules, Regulations, and Reforms; Market Entry and Exit; Banking Industry; United States;

Citation:

Kerr, William R., and Ramana Nanda. "Banking Deregulations, Financing Constraints and Firm Entry Size." Journal of the European Economic Association 8, nos. 2-3 (April–May 2010): 582–593.