This paper investigates the effects of bank branch competition on rural
firm entry and exit in Hokkaido, the largest and northernmost prefecture in
Japan. Using a panel dataset of 188 municipalities, we run a two-stage least
squares regression to examine whether banking competition affects firm entry
and exit, respectively. Although the empirical evidence does not strongly
support the notion of simultaneously linked firm entry and exit, banking
competition has a negative effect on firm exit rates. Furthermore, consistent
results are obtained when running a seemingly unrelated regression. Our
findings suggest that fierce competition among banks does not contribute to
firm survival and region-based relationship banking in less competitive areas
can deter firm exit.
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