Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America

Restructuring in the financial services industry has altered the relationship between small business owners and capital. In the past small businesses have relied on relational, or soft data, lending from locally owned banks for capital. The proliferation of absentee‐owned local branch networks brought standardized practices, thus eliminating the autonomy of local loan officers to utilize soft data in loan decisions. In this article we examine the changes in the percentage of traditional financial services that are locally owned in three county types: metropolitan, micropolitan, and noncore. We utilize the Longitudinal Business Database at the U.S. Census Bureau Center for Economic Studies. We examine changes in local ownership of traditional financial services between 1976 and 2007. We find that the rate of decline of local ownership has been greatest in the noncore (most rural) counties. We also explore to what extent these patterns are related to the emergence of alternative financial services during the same period. We find that such alternative services are growing in all three county types, but at rates not significantly different than the population growth for these county types. We supplement our analysis with data from qualitative interviews with small business owners throughout rural Texas. We conclude with a discussion of implications and plans for future research.     

DOES BANKRUPTCY LAW AFFECT BUSINESS TURNOVER? EVIDENCE FROM NEW AND EXISTING BUSINESS

This study examines how differences in state bankruptcy laws, specifically the homestead exemption, affect business turnover by studying both new and existing businesses. We focus on areas just near state boundaries to control for unobserved local attributes to better isolate the effect of more wealth protection. We find that an increase in the homestead exemption attracts new businesses but also has a positive impact on existing businesses, suggesting that asset protection through bankruptcy law encourages successful entrepreneurs to incur the risks. Our results indicate that the personal bankruptcy law is an important policy tool that governments can use to encourage business growth without causing business turnover. (JEL K30, K36, R11, R1)     

Embeddedness and capital markets: Bank financing of businesses

The article examines the social and economic dimensions of capital markets, particularly the effects of bank and capital market structure; lending criteria and bank policies; and demand for credit, on bank financing of businesses. A critical problem in most capital markets is that lenders have inadequate information to assess the risk and creditworthiness of loan applicants. We find that many bankers continue to use assessments of character as a signal of the potential borrower's creditworthiness. Banking deregulation limits the range of signals available to lenders and therefore may have detrimental consequences for banks and local economies.     

The Differences in Financial Structure Between Women- and Men-Owned Family Businesses

Lenders often are faced with the challenge of evaluating the financial success of a business or a proposed business by examining the financial records of the household, reasoning that an assessment of the household's financial position should be a plausible indicator of the financial status of the business. Utilizing data from the recently released Family Business Survey, this study uses financial information about both the family and the business to examine the relationship between household financial indicators and business financial indicators for women- and men-owned family businesses. The results suggest that, while household financial statements may be good indicators for men-owned businesses, they appear to be much less reliable for women-owned businesses.     

Does foreign bank entry contribute to financial development? Examining the role of income thresholds

This article examines the relationship between foreign bank entry and financial development in a panel framework covering 57 emerging market and developing economies (EMDEs) between 1995 and 2009. Using various measures of financial sector deepening, the article also explores the degree to which the relationship between foreign bank entry and financial sector depth varies by different income thresholds of the EMDEs. The empirical findings suggest that while foreign banks have a direct positive impact in furthering financial depth, the marginal effects of foreign bank entry diminish over time with greater levels of economic development. In other words, the impact of foreign bank entry tends to diminish as the per capita income of the country rises.     

Why women earn less than men in self-employment

Data from a sample of 659 selfemployed individuals are used to evaluate explanations for the large earnings differential between selfemployed men and women. A signifi-cant portion of the differential is attributed to differences in the industrial distribution of businesses and to the differential effects of housework and family responsibilites on the earnings of males and females. Differences due to industry position are traced to the lower proportions of women in the relatively rewarding areas of construction and professional practice and their greater representation in the relatively unrewarding personal services sector. Women in selfemployment appear to be burdened by house-work and childrearing in ways that limit the scope of their selfemployed businesses and the intensity of work effort in them. If selfemployed women were to have their total hours of labor redistributed between market work and house work in the same man-ner as men, their selfemployed earnings would be substantially increased. A portion of the differential is traceable to differences in financial capital (femalerun business have smaller capital stocks) and differences in specific human capital (female self-employed have less experience in running their business).     

The role of local businesses in addressing multidimensional needs of homeless populations

ABSTRACT

Contrary to the perception that the business community can be hostile and exclusive toward individuals experiencing homelessness, local businesses can and do serve homeless populations at multiple levels. This article proposes a theoretical framework that links the versatile roles that local businesses can play in addressing various dimensions of human needs. This theoretical framework is illustrated through two models in Washington, D.C. and Los Angeles, which focus on the role of business improvement districts (BIDs) and a social enterprise intervention (SEI), respectively. These models demonstrate that the business community can meet not only physical needs but also the emotional and self-actualization goals of homeless individuals. This article suggests that social work education and field education curricula can benefit from engaging the business sector in addressing complex social issues, such as homelessness.     

FISCAL POLICY AND LENDING RELATIONSHIPS

This paper studies how fiscal policy affects loan market conditions in the United States. First, it conducts a structural vector‐autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a dynamic stochastic general equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock. (JEL E44, E62)     

LEANING AGAINST WINDY BANK LENDING

Using an estimated dynamic stochastic general equilibrium model with banking, this paper first provides evidence that monetary policy reacted to bank loan growth in the United States during the Great Moderation. It then shows that the optimized simple interest‐rate rule features no response to the growth of bank credit. However, the welfare loss associated to the empirical responsiveness is small. The sources of business cycle fluctuations are crucial in determining whether a “leaning‐against‐the‐wind” policy is optimal or not. In fact, the predominant role of supply shocks in the model gives rise to a trade‐off between inflation and financial stabilization. (JEL E32, E44, E52)     

Verteilungseffekte von Finanzialisierung

Financialisation is often associated with rising income inequality. The article describes the major aspects of financialisation in the foreign, financial, business and household sector, and identifies several hypotheses how financialisation affects functional income distribution. We discuss enhanced exit options of firms, rising financial overhead costs for businesses, increased competition in capital markets, and weakened bargaining power of workers due to indebtedness. The different hypotheses are operationalised through empirical measures and their effect on the wage share is tested econometrically by means of a panel data set of 14 OECD countries over the period 1992–2014. We find statistically significant negative effects of financial payments of firms and financial openness on the wage share.     

THE DEMAND FOR EXCESS RESERVES, LIABILITY MANAGEMENT, AND THE MONEY SUPPLY PROCESS

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the "demand" for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked.     

The Use of Owner Resources in Small and Family Owned Businesses: Literature Review and Future Research Directions

This paper integrates relevant literature and the Sustainable Family Business Model regarding interchange of financial resources between family and business. Two distinct literatures on the use of owner resources in small businesses are examined: the intermingling of business and household resources from the family firm literature and financial bootstrapping studies from the small business finance literature. What has not been addressed in both literatures about the use of owner resources is discussed and the risks that owner resource bootstrapping and intermingling may place on the household and the business are considered. Recommendations and propositions for future research are suggested. To fully understand the makeup and success of household financial portfolios and family businesses, it is important to understand the use of owner resources in a holistic manner.     

Consolidation in the Exchange Industry: What are Exchanges Actually Worth? Some Evidence from a Crises Environment

It is generally acknowledged that the exchange industry shares the typical features of network industries, forcing exchanges to merge across countries. This process was first urged by the need to keep up with technological developments and increased competition from peers and new competitors. Starting 2005 and up to 2007 we observed significant cross border mergers within the securities industry leading to the creation of a few large groups with a diversified business model. It was questioned whether such mergers leaded to a stable equilibrium. Now, in the aftermath of the crisis a new wave of consolidation is taking place. The financial turmoil dramatically affected the market functioning delivering severe strains to the financial sector and modified the way of conducting business. We address the implications of the crisis on exchange??s values, investigating if expectations lying behind values have somewhat changed or compressed or reflect new opportunities.     

Occupational Channels for Mexican Migration: New Destination Formation in a Binational Context

In the 1990s, Mexican immigration dispersed spatially, leading to the emergence of many “new destinations,” in nonmetropolitan areas of the United States. Previous studies constrain the scope of the analysis to the United States, limiting our understanding of how new destinations are formed. We place new destination formation into a binational context and emphasize the role of supply‐side immigration dynamics. We argue that occupations in Mexico provide ready‐made paths, or “channels,” for economic incorporation into the United States and that these channels underlie the formation of many new destinations. Using a unique data set on Mexican migration, we estimate a multivariate model that tests for the presence of occupational channels linking analogous sectors of the U.S. and Mexican economies, focusing especially on the food‐processing sector. The results demonstrate that Mexican migration is strongly channeled along occupational lines. There are occupational channels linking each of the major economic sectors in Mexico and the United States, but the effect of channeling is particularly strong in the food‐processing sector. By empirically identifying the existence of occupational channels, this study uncovers a key explanation of new destination formation in many nonmetropolitan areas.     

Courting LULUs: Characteristics of Suitor and Objector Communities*

Abstract This research examines nonmetropolitan places most likely to support or oppose proposals for locally undesirable land uses (LULUs) involving waste management facilities. Two hypotheses are tested: (1) that relatively remote communities of lower socioeconomic status will be less likely to oppose such proposals; and (2) that support for such proposals is widespread among nonmetropolitan communities because of growth machine activities. Using key informants and secondary data for 166 non‐metropolitan Pennsylvania places, we find that local growth promotion, especially efforts to promote business and industry, is related positively to community experience with plant closings and to proposals for these LULUs. Where these proposals are made, community opposition tends to be present as well, particularly in larger communities and, surprisingly, in those of lower socioeconomic status. The significance of these findings is discussed in terms of the growth machine and the opposition they can provoke to protect the use value of land in a single nonmetropolitan region.     

Reactions Versus Perceptions Within the Romanian Banking Sector in Times of Crisis and Reorganization

Our paper contributes to the literature on the Romanian banking sector by analyzing a particular credit institution, namely the Cluj Napoca regional corporate business center of BCR Erste Bank Romania. Our choice is motivated by the fact that the Cluj Napoca regional center represents the pilot used by Erste Bank in testing all structural changes, new technologies and management and risk strategies. The analysis being developed focuses on the restructuration process taking place due to BCR’s merger with Erste Group, in what was considered to be one of the most spectacular takeovers in Central and Eastern Europe, therefore forming BCR Erste. The analyzed period also involves financial crisis circumstances. Considering the changes taking place within both the internal and external environment of the bank we oriented our analysis towards the bank’s clients. More precisely, we tested if, under the considered circumstances, we could find a connection between the bank’s clients’ reaction to the events taking place and their perception upon the same phenomenon. Regression models are used in developing the analysis. The results of the study come to prove the existence of a medium intensity relationship between clients’ perception on the two considered phenomenon and their reaction. Such results are justified if we think that on one hand the restructuration contributed towards positive effects while on the other we have negative effects due to the financial crisis. Our study has the obvious limitation of only approaching one case study. The analysis performed on BCR Erste’s case could also be extended to other banks. Conclusions therefore being reached and the potential effects of this type of research could be directly beneficial for the local, regional and/or national economic environment. The information aimed to be obtained is in line with the bank’s policy of orientation towards its clients. Besides analyzing clients’ perception, our analysis also considers its connection to their reaction. Since clients’ behavior is always in the center of management’s attention, dimensioning this connection bears significant practical implications. The distinctive element of the study is given by the analyzed period representing for the chosen bank both its restructuration process and the period when the financial crisis peaked in its manifestation.     

NUMERACY AND ON-THE-JOB PERFORMANCE: EVIDENCE FROM LOAN OFFICERS

We examine how the numeracy level of employees influences their on-the-job performance. Based on an administrative dataset of a retail bank we relate the performance of loan officers in a standardized math test to the accuracy of their credit assessments of small business borrowers. We find that loan officers with a high level of numeracy are more accurate in assessing the credit risk of borrowers. The effect is most pronounced during the precrisis credit boom period when it is arguably more difficult to pick out risky borrowers. (JEL G21, J24)     

Symbols of Organization: Informal Ways of Negotiating the Global and the Local in MNCs

Abstract In this article I build on the growing number of anthropological studies of businesses and explore the role that symbols play in the development of globalizing business networks. Transnational business people employ symbols not only to define boundaries between groups and develop collective solidarity but also to construct continuously changing networks between different social spaces and even, in the final analysis, between the concepts of global and local. The case study presented here focuses on the use of the symbols defining ‘German business style’ by the employees of a branch of a German bank in London as they interact with colleagues in the office, staff at their Frankfurt head office, and their clients and competitors. I conclude that, first, the use of symbols in social interaction is key to the negotiation of global and local spaces, and second, that, as the concepts of ‘global’ and ‘local’ spaces are themselves symbolic constructs, the drawing of distinctions between the two may be misleading.     

Factors Associated with the Development of Nonmetropolitan Growth Nodes in Producer Services Industries, 1980–1990*

Abstract Over the 1980–1990 period, employment in producer services industries in the nonmetropolitan United States increased substantially. This growth resulted in the development of nonmetropolitan growth nodes in producer services industries. A growth node refers to a nonmetropolitan area that contains a greater than average concentration of employment in a particular industry sector relative to other nonmetropolitan areas. Moreover, this industry concentration not only increases over time, but also represents an important source of employment growth within the area. With nonmetropolitan counties as the spatial unit of analysis, 317 growth nodes in producer services industries are identified for the 1980–1990 period. Access to workers with clerical and administrative support skills, access to highly educated workers, higher earnings per employed worker, access to recreational amenities, and proximity to metropolitan areas were associated with the development of nonmetropolitan growth nodes in producer services industries during this period.     

Innenansichten eines Wohlfahrtsmarkts

The 2001 pension reform act (“Riester reform”) has recast old-age security in Germany by placing more emphasis on private provisions. The new policy draws on markets and competitive structures in social welfare, as done earlier in long-term care and in public utilities. In the social welfare sector in Germany, such privatisation mostly goes hand in hand with a far-reaching “social” regulation of markets. Old-age pensions are the most recent case in point. For the first time, financial markets figure as welfare markets. This is done in the politically most sensitive sector of the German welfare state, old-age security. In theoretical terms, we interpret the change as a structural transformation of German “social capitalism”. Empirically, we investigate the structure of the new welfare market and the attitudes of the providers, based on a survey of all providers of private pensions in Germany. The findings include: (1) Markets can produce the welfare good “income security in old-age” only by way of a complex arrangement of three markets – financial markets, pension markets and markets for financial consultancy services. (2) The pension reform of 2001 has given rise to a new welfare market: an old-age pension market as a distinct sub sector of the wider market for financial investment and saving. The pension market constitutes a new field of business, with new actors, new products and new arenas of competition. The new market is created and shaped by politics. (3) The new private pension market combines market principles with welfare state principles. The providers conceive of their business as contributing to social security, and they recognise that the state sustains and structures the market.