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Local mutual banks are believed to handle information asymmetries, due to the opacity of small firms' clients, better than large-sized banks. The main research question of our work is to find out if clients of Italian mutual banks (BCCs) are endowed with a special relationship with the bank and which are the benefits for them. The analysis is mainly based on the results of a field survey carried out at the beginning of 2002 on 1700 firms over more than 400 municipalities where BCCs and other banks are located. The sample is randomly extracted from public listings and is formed by small and very small firms. It significantly represents the features of the Italian small business sector and different geographical areas. The paper is structured as follows. The first part develops a concise theoretical framework of the approaches to competition in banking markets, with special reference to the problems of switching costs and relationship lending. The second part is based on a descriptive analysis of the characteristics of customer relationships and is focused on both the factors explaining multiple banking accounts and customers' reasons for changing their reference bank. Lastly, a statistical model is used to analyze the elements that explain the particular type of relationship between small banks and small firms, identifying the specific advantages of a preferential banking relationship. The empirical findings show consistency to a great extent with our assumptions. Small and very small firms normally meets their financial needs better at BCCs than at other banks as a consequence of proximity, direct knowledge and long-term relationship. BCCs relationships are generally endowed with satisfaction by the part of the firm, especially in terms of credit availability. Neither market power in many areas nor hold-up problems turn out to be affecting banking relationships at the small-sized firm segment. |
