Fledgling entrepreneurs, start-ups and small businesses all depend on external financing if they are to flourish.

Many will look to their local banks for funding, often in the belief that these banks will offer them better lending terms. Whilst large centralised banks make their lending decisions based on credit scoring models, their smaller, local counterparts have a far more decentralised lending structure which allows the local bank manager more discretion when making lending decisions.

However new research has found that although this premise may be true, it is only correct up to a certain extent.

The caveat say Rodrigo Canales, an assistant professor of organisational behaviour at the Yale School of Management and Ramana Nanda, an associate professor of business administration at Harvard Business School is that there has to be competition; only then will start-ups get good banking deals.

When there are several small banks, all competing for business, smaller companies are likely to receive a good deal, however when there is only the one bank in town, even when it is highly decentralised, it will offer smaller loans and charge higher interest rates.

The pair analysed all loans awarded to small companies in Mexico between 2002 and 2006. They discovered that in markets where there was less competition decentralised banks gave loans that were 60 per cent smaller than the ones made by centralised banks. They also charged higher interest rates.

Branch managers will respond to their local; environments says Prof Canales.

“If the decentralised bank is the only game in town, the manager will give firms worse conditions because he or she knows the firms don’t have other options.

“If there is competition the manager can react to that and operate in ways that centrailised competitors cannot.”

Prof Canales adds that to help small companies there should be a variety of lending models, not simply centralised and decentralised lending.

Their paper, A darker side to decentralised banks: market power and credit rationing in SME lending is published in the Journal of Financial Economics.

● Do women at the very top of their companies have different leadership styles from men? Previous studies have shown that women do indeed have different management styles, but David Matsa, an assistant professor of finance at Kellogg School of Management wanted to look at the bigger picture.

Working with Amalia Miller, an associate professor in the department of economics at the University of Virginia, Prof Matsa wanted to look at the larger strategic actions that female chief executives might take and how these would impact on their companies.

In 2006 Norway adopted a mandate calling for more female board members; within two years all publicly listed companies in the country had to have 40 per cent women on their boards. Prof Matsa and Prof Miller looked at 104 Norwegian companies that had been affected by the quota system and compared them with unlisted companies in both Norway and other Nordic companies that had not been obliged to increase the amount of women on their boards.

The academics discovered that the quota had little impact on companies, with revenues, most costs and rates of mergers and acquisitions remaining roughly the same. However one area was different – labour costs were higher where companies had been impacted by the quota. Closer examination revealed that these higher labour costs did not come from higher wages, but from higher relative employment.

Companies that had been affected by the quota – and had more female board members – were not laying off workers as often as those companies that were not obliged to take on more women.

The professors suggest two possible reasons for this: female leaders might be more sensitive to the needs of their workforce and less inclined to lay them off when demand was low; alternatively female leaders might be more willing to retain their workers because it is a “sound, long-term economic strategy”.

Is there a female leadership style? can be read online at Kellogg Insight.

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