Bank Information and Firm Growth: Microeconomic Evidence from the US Credit Market

We investigate the impact that banks’ information on borrowing firms has on firm-level growth using matched bank-firm data from the U.S. credit market. Exploiting the structure of lending syndicates to construct proxies for banks’ information acquisition, we find consistent evidence that banks’ information spurs firms’ tangible and intangible investments, promoting better growth outcomes. We find limited evidence of banks’ exploitation of informational monopolies that could deter firms’ investment, even when banks hold significant credit market power. Banks’ information does not appear to bias firm growth towards capital-intensive investments, but rather fosters employment growth.