Abstract
Small business is important to U.S. economy. However, they are difficult to obtain external finance. Since 1990s, deregulations happened in the U.S. banking market and affected small business finance greatly. Relationship banking is an effective lending technology for small business finance. Therefore, this thesis aims to investigate the nature of relationship banking and its impacts by using the data from U.S. Survey of Small Business Finances 1993, 1998 and 2003. The survey is led by U.S. Federal Reserve Board and it is representative and comprehensive for U.S. small business finance. The thesis contains three pieces of empirical research on small business: 1. Investigation on the impacts of relationship banking and banking market concentration on capital structure. Findings: relationship banking has favourable impacts on the availability of external finance for small firms. 2. Examination on the primary banking relationship switching behaviour and its impacts on loan terms. Findings: such switching behaviour decreases loan approval rate, increases borrowing cost and lengthens loan maturity. 3. Investigation on the determinants of communication in person approach with primary banks and its impacts on small business finance. Findings: ‘soft information’ transmission strengthens the banking relationship, reduces the borrowing costs and improves the availability of finance. The contributions to the existing knowledge regarding small business include: 1. First to investigate the reverse financial life cycle effect of relationship banking on small business’ capital structure; 2. First to examine the impacts of “switching behaviour” on certain terms of loan deals; 3. Frist to capture the beneficial effects of soft information communication on banking relationships, borrowing costs and discouraged borrowing. This thesis sheds lights on policy agenda/debate as follows: 1. Government would be wise not to increase banking market competition. 2. Encouragement from the policy aspects on the innovative information technologies making soft information transmission computerized is meaningful.