Which Came First, the Chicken or the Egg? Banks and Firms on Local Banking Markets

This study investigates the interactions between the financial health of cooperative banks and the performance of small and medium-sized enterprises (SMEs). Using a unique dataset on local banking markets in Poland, we establish that a strong financial standing of SMEs improves the profitability of banks that operate in the same neighborhood; however, the growth of banks is not affected. In contrast, the financial situation of cooperative banks is generally irrelevant for SME performance.