Title: Market power and relationships in small business lending
Description: The empirical research literature regarding the effects of market structure on small business  lending has yielded ambiguous results. This paper empirically tests for the presence of countervailing  effects of increases in market concentration on small business loan volume. Countervailing  effects would be expected if both the traditional Structure, Conduct, Performance  (SCP) paradigm of industrial organization and a paradigm whereby market power benefits the  formation of lending relationships (the relationship hypothesis), are at work. Using Community  Reinvestment Act (CRA) data on small loans to small businesses, it is found that, on average,  across MSAs, SCP effects dominate. But, as predicted by the relationship hypothesis, the negative  effects of increases in concentration on small business loan volume are weaker, the greater  the presence of young firms and the higher the business failure rate. Relationship effects due  to business failure appear to come from highly concentrated MSAs. Endogeneity concerns are  further addressed with the estimation of a regression that separates out the effects of changes  in the number of lenders from the effects of changes in the sum of squared deviations of market  shares.