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This study
investigates the relationship between bank lending to small businesses,
banking company size and complexity, and bank consolidation. We consider two
potential influences on small business lending associated with changes in
the size distribution of the banking sector. First, organizational
diseconomies may increase the costs of small business lending as the size
and complexity of the banking company increases. On the other hand,
size-related diversification may enhance lending to small businesses. We
find first that small business loans per dollar of asset rises, then falls,
with banking company size, while the level of small business lending rises
monotonically with size. Second, consolidation has enhanced overall lending
by allowing banks to lend more per dollar of assets. We interpret these
findings as consistent with the diversification hypothesis.
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