Bank concentration, urban development and firm access to credit in Latin America

We study the effects of urban characteristics on access to commercial credit. For that purpose, we construct a dataset about the development potential of land in different cities, which takes into account building density, as well as natural geographic constraints. We use these data to assess how the development potential of urban centers affects the impact of bank concentration on financing. We apply our method to Latin America, a region in which banks play a crucial role, and many loans require real estate collateral. In line with the information-based hypothesis, we find a positive relation between bank concentration and firms' credit accessibility; and we show that the development potential of the cities in which firms are located moderates this positive relationship and helps to explain firm-level differences in access to capital.

Automated summary

We examine the impact of urban characteristics on access to commercial credit. Using a dataset on land development potential in different cities, we consider building density and natural geographic constraints. Our analysis focuses on Latin America, a region where banks play a vital role and real estate collateral is common for loans. Consistent with the information-based hypothesis, we find a positive relationship between bank concentration and firms' credit accessibility, and we demonstrate the importance of city development potential in explaining variations in access to capital.