Knockin' on the bank's door: The impact of U.S. bank branch closures on self-employment dynamics

Abstract

The U.S. bank branch network has contracted since the 2010s, limiting borrowers' access to credit institutions. This paper analyzes the changes in banks' branch concentration and their effect on borrowers' choices of being self-employed. To evaluate the impact of the bank branch closings, I use a shift-share research design to assess self-employment exits using zip code variation in preexisting bank market shares. I disaggregate the self-employed into two categories: entrepreneurs whose businesses depend on business loans (incorporated self-employed) and other self-employed individuals (unincorporated self-employed). Using a Community Advantage Panel Survey, I find that the proximity of credit market institutions has heterogeneous effects on self-employment exits. While bank branch closures lead to a decline in incorporated businesses, particularly within a five-mile radius, unincorporated businesses appear insignificantly affected.