The Impact of the Competitive Environment of Regional Financial Institutions on the Opening and Closing of Business Establishments

Author Name HARIMAYA Kozo (Ritsumeikan University) / OZAKI Yasufumi (Kushiro Public University)
Creation Date/NO. August 2017 17-J-047
Research Project The Role of Regional Financial Institutions toward Regional Revitalization: How do regional financial institutions contribute to improving the quality of employment in the local economy?
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Under the setup of the Shinzo Abe administration's regional revitalization policy, various expectations are placed on the role of regional financial institutions. On the other hand, regional financial institutions have been promoting the strengthening of the function of relationship banking since the mid 2000s, and various initiatives aimed at revitalizing regional economies are under way. However, the regional economy is still in recession, and the number of closed business establishments exceeds the number of businesses opened except for some large cities over the past decades. In addition, since many regional financial institutions have been expanding their branch networks, there is a high possibility that the relationships with local business partners are becoming weak. In this paper, we examine how the competitiveness of regional financial institutions affects the entry and exit rates of private enterprises, using municipality-based data of "economic census." We find that as the degree of competition falls, the firm entry rate rises and the firm exit rate falls. Consistent results were obtained even when the number of employees is used instead of the number of establishments. Our main findings support the previous studies which predict that low bank competition will increase access to credit, and indicate the significance of the existence of regional financial institutions in rural areas.