SME’s main bank choice and organizational structure: Evidence from France Discussed by Jun YAO The Hong Kong Polytechnic University

Topic This paper tests whether decentralized banks are more attractive when customers are opaque ones by analyzing the choice of banks by small and medium sized French firms.

Main Findings Opaque firms more likely choose decentralized banks. Opaque firms with hierarchical main banks are more likely to be credit constrained.

Main Findings

Overall The topic is quite interesting. The authors are very careful and tried several alternative measures. I learned a lot by reading this paper.

Discussion Sample selection: only focus on those companies younger than 5 years. Why only focus on most opaque firms? All of them are opaque firms. It’s hard to measure their informational opacity. You can easily identify those firms who have switched their main banks. It’s also interesting to examine the changes. Whether a firm switches its main bank when its opacity changes.

Discussion Measure for firm’s informational opacity It is found that large firms choose large banks. There are other explanations for the findings. Economies of scale, for example.

Discussion Measure for credit rationing It seems Taxes over total debt is also a proxy for profitability. According to Berger et al (2002), SME which borrow from large banks are more likely to pay their trade credit late. Do you have the data to verify this in your sample? If the hypothesis is that the opaque firms that have hierarchical main banks are more likely to be credit constrained, you can examine: Rationing=a+b 1 opacity+b 2 bankorgn+b 3 interaction+...

Discussion Robustness checks You can try to include more control variables related to the firm’s solid information in your regression. For example, profitability, stability of performance, … A small firm with good observable performance may choose large banks. ~THE END