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Accessibility and economic growth : a study of spatial differences in forest industry financing in British… Newell, Allan Roy 1977

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A C C E S S I B I L I T Y A N D E C O N O M I C G R O W T H : A S T U D Y O F S P A T I A L D I F F E R E N C E S I N F O R E S T I N D U S T R Y F I N A N C I N G I N B R I T I S H C O L U M B I A b y A L L A N R O Y N E W E L L B.A., U n i v e r s i t y o f B r i t i s h C o l u m b i a , 1 9 7 3 A T H E S I S S U B M I T T E D I N P A R T I A L F U L F I L M E N T O F T H E R E Q U I R E M E N T S F O R T H E D E G R E E O F i n T H E F A C U L T Y O F G R A D U A T E S T U D I E S ( D e p a r t m e n t o f G e o g r a p h y ) W e a c c e p t t h i s t h e s i s a s c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d T H E U N I V E R S I T Y O F B R I T I S H C O L U M B I A A u g u s t , 1 9 7 7 (c) A l l a n R o y N e w e l l , 1 9 7 7 M A S T E R O F A R T S In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t of the requ i rement s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h Co lumb ia , I ag ree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s tudy . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d that c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i thout my w r i t t e n p e r m i s s i o n . Department o f Co^raphy The U n i v e r s i t y o f B r i t i s h Co lumbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 Date AugUSt 6, 1977 i ABSTRACT The a v a i l a b i l i t y o f s u f f i c i e n t f i n a n c e f o r l o n g term c a p i t a l investment i s g e n e r a l l y conceded to be a p r e r e q u i s i t e f o r economic growth. The p r e s e n t t h e s i s q u e s t i o n e d whether f r i c t i o n o f d i s t a n c e hampers entrepreneur-borrowers and l e n d i n g i n s t i t u t i o n s d u r i n g n e g o t i a t i o n s which precede l o n g term l o a n agreements. I t was reasoned t h a t i f the d i s t a n c e handicap were s i g n i f i c a n t , then a study o f growth e x p e r i e n c e s o f s i m i l a r c a p i t a l i n t e n s i v e f i r m s s h o u l d show an a s s o c i a t i o n between slow growth and low a c c e s s i b i l i t y t o f i n a n c i a l i n t e r -m e d i a r i e s . A l i t e r a t u r e r e v i e w and d i s c u s s i o n s w i t h o f f i c i a l s a t d i f f e r e n t f i n a n c i a l i n s t i t u t i o n s suggested v a r i o u s f a c t o r s which c o u l d i n t e r v e n e i n the h y p o t h e s i z e d r e l a t i o n s h i p , so t h e key hypotheses were m o d i f i e d a c c o r d i n g l y . An i n t e r v i e w survey was undertaken o f p r i n c i p a l s o f f i f t y s m a l l and medium-sized f o r e s t i n d u s t r y f i r m s d i s t r i b u t e d over v a r i o u s r e g i o n s o f the p r o v i n c e o f B r i t i s h Columbia. In a d d i t i o n to data c o l l e c t e d on f o r m a l q u e s t i o n n a i r e s , a r e c o r d o f v e r b a l comments made by respondents was compiled a f t e r each i n t e r v i e w . I n f o r m a t i o n from the q u e s t i o n n a i r e s was p r o c e s s e d by computer. In n e a r l y a l l checks f o r a s s o c i a t i o n , r i g o r o u s t e s t s o f s i g n i f i c a n c e c o u l d n o t be a p p l i e d because o f the s m a l l sample and number o f meaningful c a t e g o r i e s i i w i t h i n v a r i a b l e s . The q u e s t i o n n a i r e data and. i n t e r v i e w r e c o r d s were used i n a q u a l i t a t i v e a p p r a i s a l o f the key q u e s t i o n s o f the study. The f i n d i n g s were t h a t t h e r e was l i t t l e d i f f e r e n c e i n growth e x p e r i e n c e s o f s i m i l a r f i r m s w i t h g r e a t e r s p a t i a l s e p a r a t i o n from f i n a n c i a l i n t e r m e d i a r i e s , a t l e a s t f o r d i s t a n c e s l e s s than 250 m i l e s . For l o n g e r t r a n s a c t i o n d i s t a n c e s t h e r e was evidence o f f r i c t i o n o f d i s t a n c e . The l i m i t e d evidence suggested d i s t a n c e c o n s t r a i n e d "borrowers o f c a p i t a l more than i n s t i t u t i o n s , a l t h o u g h i n d i r e c t evidence suggested t h a t i n s t i t u t i o n s were n o t completely u n a f f e c t e d "by d i s t a n c e . The c o n c l u s i o n was t h a t a c c e s s i b i l i t y was a f a c t o r a f f e c t e d p a t t e r n s o f f i n a n c e , but d i d not e x e r t profound i n f l u e n c e . Businessmen were a b l e t o overcome d i s t a n c e i n s e a r c h o f c r e d i t i f s u f f i c i e n t e f f o r t were a p p l i e d . F i n a n c i a l i n s t i t u t i o n s r e q u i r e p a r t i c u l a r i n f o r m a t i o n c o n c e r n i n g proposed investments and t h e q u e s t i o n o f whether the i n s t i t u t i o n had p e r s o n n e l capable o f i n t e r p r e t i n g such i n f o r m a t i o n was o f more importance than d i f f i c u l t i e s o f i n f o r m a t i o n c o l l e c t i o n posed by d i s t a n c e . The t h e s i s examines the r e l e v a n c e o f the hypotheses i n the context o f o t h e r major changes a f f e c t i n g the B r i t i s h Columbia f o r e s t i n d u s t r y . i i i T A B L E O F CONTENTS P a g e L I S T OP T A B L E S v L I S T OF F I G U R E S , . . v i C h a p t e r 1 . I N T R O D U C T I O N 1 I N T R O D U C T I O N TO T H E S I S PROBLEM 1 S C O P E O F T H E R E S E A R C H 4 2 . S P A T I A L A S P E C T S O F T H E F I N A N C I A L S Y S T E M : A C R I T I C A L REVIEW O F T H E L I T E R A T U R E 14 I N T R O D U C T I O N 14 CANADIAN GEOGRAPHERS ON THE F I N A N C I A L S Y S T E M * 15 O M I S S I O N S I N T H E L I T E R A T U R E 28 L e n d i n g on W e i g h t o f C h a r a c t e r 28 P e r s o n a l i t y o f L o a n s O f f i c e r s 29 I n t e r - i n s t i t u t i o n C o m p e t i t i o n 30 SUMMARY 31 3 . METHODS O F D A T A C O L L E C T I O N 35 I N T R O D U C T I O N 35 T H E I N T E R V I E W S U R V E Y 36 THE I N T E R V I E W P R O C E D U R E 39 C O N C E P T U A L BREAKDOWN OF T H E Q U E S T I O N N A I R E 40 SUMMARY 57 i v Chapter Page 4. PRESENTATION OP SURVEY RESULTS 60 INTRODUCTION 60 QUANTITATIVE ANALYSIS OP STANDARD QUESTIONNAIRES 60 Bas i c Components o f the A n a l y s i s 60 L o g i c o f the Q u a n t i t a t i v e A n a l y s i s Phase 63 I n t e r p r e t a t i o n o f S t a t i s t i c a l R e s u l t s o f C r o s s t a b u l a t i o n s 64 Summary o f Problems 69 QUALITATIVE SURVEY FINDINGS 70 I n t r o d u c t i o n 70 General R e s u l t s f o r V a r i o u s I n s t i t u t i o n s 70 Overview o f F o r e s t I n d u s t r y Changes ... 90 SUMMARY 98 5. SUMMARY 102 BIBLIOGRAPHY 112 APPENDIXES 116 V LIST OP TABLES Table Page 4.1 Level of Significance of Test Hypotheses, and Strength of Association, for Crosstabulations of Survey Variables .. 67-68 4.2 Crosstabulation: Whether Two Banks Were Ever Approached with Same Loan Proposal, versus Highway Mileage to Nearest Branch Bank 73 4.3 Crosstabulation: Outcome of Approach to Industrial Development Bank for a Loan on Most Recent Expansion Project, Versus Distance to Nearest IDB Office.. 82 4.4 Crosstabulation: Whether Firm Had at Any Time Discussed Business Loans With Officials of Roynat Ltd.. Versus Regional Center Closest to the Firm ... 86 4.5 Crosstabulation: Whether Firm Approached a Finance Company for a Loan on Latest Expansion Project, Versus Highway Mileage to Nearest Chartered Bank Bran ch 88 v i LIST OF FIGURES Figure Page 1. Simple Model of Capital Market 7 2. Distance Components in Chartered Banking Operations 22 i v i i ACKNOWLEDGEMENTS I would l i k e to take t h i s o p p o r t u n i t y t o thank the many i n d i v i d u a l s who have supported me i n t h i s p r o j e c t . F i r s t l y , I am g r a t e f u l to Dr. Robert N o r t h f o r h i s p a t i e n t a d v i c e and a s s i s t a n c e throughout my graduate s t u d i e s . Dr. K. G. Denike was a l s o v e r y generous w i t h h i s time and s u p p o r t . I wish to commend the many businessmen who took time out from busy s c h e d u l e s to p a r t i c i p a t e i n an i n t e r v i e w , e s p e c i a l l y those who went beyond the s e t i t i n e r a r y t o e x p l a i n d e t a i l s t h a t were beyond my p r e v i o u s e x p e r i e n c e . I am g r a t e f u l to Bob Westwood bot h f o r h i s a d v i c e and a l s o f o r the p e r s o n a l example he has p r o v i d e d . F i n a l l y , I must acknowledge the g r e a t debt owing t o my wif e Mary E l l e n and son Danny, who have c h e e r f u l l y shared the f r u s t r a t i o n s as w e l l as c a r r i e d many o f my r e s p o n s i b i l i t i e s f o r me d u r i n g t h i s p r o t r a c t e d e f f o r t . 1 Chapter 1 INTRODUCTION TO THESIS PROBLEM T h i s t h e s i s examines whether p h y s i c a l a c c e s s i b i l i t y a f f e c t s p r i v a t e e n t r e p r e n e u r s when they want expansion l o a n c a p i t a l . The. t h e s i s seeks answers to two b a s i c q u e s t i o n s : does d i s t a n c e c o n s t r a i n businessmen to r e q u e s t c a p i t a l l o a n s from o n l y the most a c c e s s i b l e f i n a n c i a l i n s t i t u t i o n s ? Secondly, does d i s t a n c e a d v e r s e l y a f f e c t procedures used by f i n a n c i a l i n s t i t u t i o n s f o r g r a n t i n g l o a n s ? An a f f i r m a t i v e answer to e i t h e r q u e s t i o n would mean t h a t c a p i t a l a v a i l a b i l i t y i s a f a c t o r which causes s p a t i a l v a r i a t i o n s i n economic development. There were c o m p e l l i n g reasons f o r the c h o i c e o f t o p i c . F i r s t l y , r e g i o n a l d i s p a r i t i e s are a simmering p o l i t i c a l i s s u e which has commanded p u b l i c a t t e n t i o n i n Canada f o r over t h i r t y y e a r s . D e s p i t e a v a r i e t y o f r e g i o n a l development programs, areas o f c h r o n i c unemployment and low incomes have s t u b b o r n l y p e r s i s t e d . P o l i t i c a l p r e s s u r e d r i v e s forward the s e a r c h f o r s o l u t i o n s , r e s u l t i n g i n a s h i f t i n g k a l e i d o s c o p e o f d i f f e r e n t f e d e r a l government programs. A second reason f o r concern i s t h a t the t h e o r e t i c a l r e l a t i o n s h i p between c a p i t a l markets and r e g i o n a l development i s s t i l l the s u b j e c t o f u n r e s o l v e d c o n t r o v e r s y . 2 The proponents o f an important r e g i o n a l economic growth model o f f e r one view, s i n c e they simply assumed t h a t " ( b ) y any r e a s o n a b l e s t a n d a r d , the c a p i t a l market i n the 1 U n i t e d S t a t e s i s almost, a p e r f e c t one." However, o t h e r w r i t e r s o b j e c t e d to t h a t a s s e r t i o n and o f f e r e d c o n t r a s t i n g o p i n i o n s . For example, Rich a r d s o n w r o t e i " ( t ) h e determinants of i n t e r - r e g i o n a l c a p i t a l flows i n the r e a l world a r e , however, w i d e l y a t odds w i t h the a b s t r a c t p assumptions o f the p e r f e c t l y mobile c a p i t a l market." Another economist agreed: "Y/hether i/ohg-term r e g i o n a l growth models s h o u l d be based on the assumption o f a p e r f e c t c a p i t a l market or whether t h e r e i s some more d i r e c t c a u s a l r o l e f o r the c a p i t a l market i n r e g i o n a l growth has n o t been c r i t i c a l l y examined. Whether or not c a p i t a l markets e x h i b i t s i g n i f i c a n t r e g i o n a l c o m p a r t m e n t a l i z a t i o n , and i f so, the e x t e n t to which t h i s i n h i b i t s growth i n p a r t i c u l a r r e g i o n s , remain unanswered q u e s t i o n s . " ^ The unsupported a s s e r t i o n s and c o u n t e r - a s s e r t i o n s c l e a r l y i n d i c a t e the need f o r case study documentation. I t i s l i k e l y t h a t government p o l i c y c o u l d b e n e f i t from such d i r e c t e d r e s e a r c h , even though c o n c r e t e government a c t i o n s c o u l d not have waited f o r t h e o r e t i c a l c l a s -s i f i c a t i o n s . The p r e s e n t t h e s i s h y p o t h e s i z e d s e v e r a l types o f s p a t i a l i m p e r f e c t i o n s i n the Canadian c a p i t a l market, and the study was designed to a v o i d unproven argumentation s i n c e a f i e l d study compared the hypotheses to a c t u a l e x p e r i e n c e s . The f i r s t h y p o t h e s i s was t h a t businessmen a r e c o n s t r a i n e d by the r e a l e f f e c t s o f d i s t a n c e to r e q u e s t c a p i t a l l o a n s from f i n a n c i a l i n s t i t u t i o n s i n t h e i r v i c i n i t y . 3 Because i n d i v i d u a l i n s t i t u t i o n s s p e c i a l i z e and serve o n l y a l i m i t e d range o f p o s s i b l e c a p i t a l l o a n needs, a businessman should have a c c e s s to complementary types o f i n s t i t u t i o n s f o r a f u l l range of s e r v i c e s to be a v a i l a b l e . His i n t e r e s t s are a l s o b e s t s e r v e d when th e r e e x i s t s u f f i c i e n t numbers o f any p a r t i c u l a r type o f i n s t i t u t i o n t o compete f o r l o a n s . Where poor a c c e s s l i m i t s a businessman to a s m a l l s e t o f i n s t i t u t i o n s , t h e r e i s a g r e a t e r chance t h a t h i s c a p i t a l needs w i l l be i n a d e q u a t e l y s e r v e d . The r e s u l t would be r e t a r d e d economic growth. The second h y p o t h e s i s was t h a t the procedures used by f i n a n c i a l i n s t i t u t i o n s f o r e v a l u a t i n g l o a n r e q u e s t s are a d v e r s e l y a f f e c t e d by d i s t a n c e . Thus, i n f o r m a t i o n r e q u i r e d by the i n s t i t u t i o n to reduce u n c e r t a i n t y about repayment becomes more d i f f i c u l t t o c o l l e c t w i t h i n c r e a s i n g d i s t a n c e . Given poor a c c e s s , u n c e r t a i n t y about l o a n r e q u e s t s may remain a t h i g h l e v e l s and the i n s t i t u t i o n may have t o e i t h e r charge a h i g h e r r i s k premium, o f f e r a l o a n a t reduced s c a l e , r e q u e s t g r e a t e r s e c u r i t y , or j u s t r e f u s e the r e q u e s t e d l o a n . Any o f these e f f e c t s o c c u r r i n g s y s t e m a t i c a l l y over time and space would d i s t o r t p a t t e r n s o f growth, by making i t h a r d e r f o r remote b u s i n e s s e s to expand as f a s t as those more a c c e s s i b l e . The two hypotheses r e i n f o r c e one another, w i t h the p r e d i c t e d r e s u l t b e i n g s i g n i f i c a n t s p a t i a l d i f f e r e n c e s i n the a v a i l a b i l i t y o f l o a n c a p i t a l . The r e l a t i v e a c c e s s i b i l i t y o f v a r i o u s l o c a t i o n s can be l a r g e l y p r e d i c t e d from knowledge o f the d i s t r i b u t i o n o f f i n a n c i a l i n s t i t u t i o n s . In f a c t , t h e i r d i s t r i b u t i o n c l o s e l y f o l l o w s the h i e r a r c h y o f c e n t r a l p l a c e s . M e t r o p o l i t a n c e n t e r s have the widest range o f f i n a n c i a l s e r v i c e s and the most depth, i n terms o f competing i n s t i t u t i o n s . In p r o -g r e s s i v e l y s m a l l e r c e n t e r s , both the range o f f i n a n c i a l s e r v i c e s and the number o f i n s t i t u t i o n s o f each type decrease markedly. A c c o r d i n g t o the hypotheses p r e s e n t e d here, economic growth w i l l be slowest i n remote areas and s m a l l e r communities. The f o r e g o i n g hypotheses formed a crude model \ which p r e d i c t e d c e r t a i n f i n a n c i a l e x p e r i e n c e s , depending upon the r e l a t i v e d i s t a n c e o f a b u s i n e s s e n t e r p r i s e from f i n a n c i a l i n s t i t u t i o n s . The purpose o f the t h e s i s was to e l a b o r a t e and j u s t i f y t h i s i n i t i a l model, and then c o l l e c t f i e l d i n f o r m a t i o n to permit i t s e v a l u a t i o n . SCOPE OF THE RESEARCH Va r i o u s c o n s t r a i n t s l i m i t e d the scope o f the stu d y . Foremost was the l i m i t e d time and funds a v a i l a b l e f o r c o l l e c t i n g f i e l d i n f o r m a t i o n . A l t h o u g h the t o p i c seemed to r e q u i r e o r i g i n a l d a t a , by n e c e s s i t y t h i s would be an economical phase. To f a c i l i t a t e d a t a c o l l e c t i o n , i t was d e c i d e d to r e s t r i c t the study to w i t h i n the p r o v i n c e o f B r i t i s h Columbia. A sample which would t e s t the hypotheses had to be d e r i v e d from d i f f e r e n t t y p e s o f l o c a t i o n s ; b o t h from 5 areas a c c e s s i b l e to l a r g e urban communities and from more i s o l a t e d p l a c e s . A l s o , to ensure t h a t sampled e s t a b -l i s h m e n t s had demonstrably s t r o n g need to borrow funds i n o r d e r to expand, i t was reasoned t h a t they had to be from i n d u s t r i e s w i t h h i g h overhead c o s t s f o r f i x e d c a p i t a l a s s e t s or equipment. P r e l i m i n a r y a p p r a i s a l o f the hypotheses i n d i c a t e d t h a t v e r y l a r g e c o r p o r a t i o n s would l i k e l y be immune from the p r e d i c t e d e f f e c t s . T h e r e f o r e , i t was pragmatic t o draw the sample from i n d u s t r i e s which had a l a r g e number of s m a l l and medium-sized f i r m s . C o n s i d e r a t i o n o f v a r i o u s i n d u s t r i a l and commercial s e c t o r s showed t h a t the B r i t i s h Columbia f o r e s t i n d u s t r y f u l f i l l e d most o f the r e q u i r e m e n t s . The o r i g i n a l i n f o r m a t i o n c o n c e r n i n g f i n a n c i a l e x p e r i e n c e s was t h e r e f o r e c o l l e c t e d from s m a l l and medium pr o d u c i n g companies i n the f o r e s t i n d u s t r y . Once the d e c i s i o n was made to c o l l e c t i n f o r m a t i o n from f o r e s t i n d u s t r y f i r m s , the q u e s t i o n o f which f i n a n c i a l i n s t i t u t i o n s to study was narrowed, s i n c e o n l y those a c t i v e i n f o r e s t r y l e n d i n g were r e l e v a n t . Chapter Two d e s c r i b e s i n d e t a i l how the l e n d i n g o p e r a t i o n s o f s e l e c t e d f i n a n c i a l i n s t i t u t i o n s could be a d v e r s e l y a f f e c t e d by d i s t a n c e . However, b e f o r e p r o c e e d i n g , the terms " c a p i t a l market" and " f i n a n c i a l i n s t i t u t i o n " r e q u i r e c l o s e r d e f i n i t i o n to i n d i c a t e how they p e r t a i n to t h i s t h e s i s . The c a p i t a l market has t h r e e b a s i c components, as shown s c h e m a t i c a l l y i n F i g u r e 1: s a v i n g groups, 6 borrowing groups, and f i n a n c i a l i n s t i t u t i o n s . The i n s t i t u t i o n s perform i n t e r m e d i a t i o n or brokerage 4. f u n c t i o n s , or p r o v i d e f i n a n c i a l c o u n s e l l i n g . A g e n e r a l f u n c t i o n o f the c a p i t a l market i s to f a c i l i t a t e e f f i c i e n t a l l o c a t i o n o f a s c a r c e good, s a v i n g s , amongst borrowers o f v a r y i n g c r e d i t - w o r t h i n e s s . The i n t e r m e d i a t i o n f u n c t i o n i n v o l v e s , f i r s t l y , c o l l e c t i o n o f funds from u b i q u i t o u s s a v i n g u n i t s i n b o t h l a r g e and s m a l l amounts. In r e t u r n , s a v i n g u n i t s r e c e i v e i n d i r e c t s e c u r i t i e s , or f i n a n c i a l c l a i m s i s s u e d a g a i n s t the i n t e r m e d i a r y r e c e i v i n g the funds. I n d i r e c t s e c u r i t i e s are o f f e r e d i n v a r i o u s forms to f a c i l i t a t e ready acceptance by s a v i n g groups. The second p a r t o f f i n a n c i a l i n t e r m e d i a r i e s 1 f u n c t i o n i s f u l f i l l e d when the funds have been d i s p e r s e d to borrowers. In r e t u r n f o r the funds, borrowing u n i t s i s s u e primary s e c u r i t i e s . 7 Figure 1 SIMPLE MODEL OF CAPITAL M A R K E T Saving Sector Supply: Public, Business, Government Borrowing Sector Demand: Public, Business, Government 1 Symbols: Flow of funds Issue of Primary Securities Issue of Indirect Securities 8 The i n t e r m e d i a t i o n f u n c t i o n i s bypassed when a saver d i r e c t l y purchases a primary s e c u r i t y o f s a t i s f a c t o r y r i s k and y i e l d . T h i s o c c u r r e n c e i s common s i n c e o f course not a l l s a v i n g s are c h a n n e l l e d i n t o f i n a n c i a l i n t e r m e d i a r i e s . However, i n t e r m e d i a r i e s c r e a t e e f f i c i e n c y i n the c a p i t a l market s i n c e c e r t a i n advantages permit them to i n v e s t funds p r o f i t a b l y i n s i t u a t i o n s whidh are i n c o n v e n i e n t , unknown or u n a c c e p t a b l e to the i n d i v i d u a l saver, p a r t i c u l a r l y those l a c k i n g investment e x p e r t i s e . Competition between f i n a n c i a l i n s t i t u t i o n s and the p r o f i t i n c e n t i v e induces them to tap a l l p o s s i b l e s a v i n g s and to f u l l y a l l o c a t e these funds i n t o s u i t a b l e i n v e s t m e n t s . S i n c e so much r e a l c a p i t a l investment flows through them, f i n a n c i a l i n t e r m e d i a r i e s a r e o f c e n t r a l concern to the t h e s i s . The brokerage f u n c t i o n overcomes time and p l a c e c o n s t r a i n t s f o r buyers and s e l l e r s o f primary s e c u r i t i e s , and p r o v i d e s a market where exchange and r e s a l e can take p l a c e . However, d e s p i t e t h e i r o v e r a l l importance, brokerage f u n c t i o n s were excluded from the study. Businesses a b l e t o use t h i s borrowing means are n o r m a l l y v e r y l a r g e and w e l l - e s t a b l i s h e d . I n v e s t e d s a v i n g s may bypass the f i n a n c i a l s e c t o r completely, as shown by Plow A i n F i g u r e 1. For example, i n r e a l e s t a t e or motor v e h i c l e s a l e s , the s e l l e r may accept i n s t a l l m e n t s i n s t e a d of a f u l l cash payment. The s e l l e r may have e x p e r t i s e i n c r e d i t e v a l u a t i o n , government r e g u l a t i o n s and s e c u r i n g the l o a n t o safeguard h i s 9 investment. P a r t i c u l a r l y when a b u s i n e s s d e a l e r s h i p i s i n v o l v e d , the s e r v i c e s p r o v i d e d may be i n d i s t i n g u i s h a b l e from those o f f i n a n c i a l i n t e r m e d i a r i e s . However, n o n - i n s t i t u t i o n a l sources o f c r e d i t were excluded from the terms of r e f e r e n c e because o f the d i f f i c u l t y o f s t u d y i n g them s y s t e m a t i c a l l y . A b a s i c d i f f e r e n c e between the f o r e g o i n g p r i v a t e f i n a n c i n g and i n s t i t u t i o n a l i z e d f i n a n c e i s noteworthy: "... g i v e n the r i s k t h a t people a t t a c h to the unknown, i t i s o n l y the v e r y s o p h i s t i c a t e d saver who would be w i l l i n g to p l a c e h i s funds i n investments f a r removed i n d i s t a n c e o r e x p e r i e n c e from h i s own environment." I n d i v i d u a l s a b l e to make d i r e c t investments probably i n v e s t i n p r o j e c t s i n t h e i r immediate v i c i n i t y , and c o u l d be c a l l e d " l o c a l lenders??. One o b j e c t i v e o f the f i e l d study was to e v a l u a t e the h y p o t h e s i s t h a t d i s t a n c e a d v e r s e l y a f f e c t s f i n a n c i a l i n t e r m e d i a r i e s ' l e n d i n g o p e r a t i o n s . T h e r e f o r e , t h e r e had t o be a number o f f o r e s t r y companies o f v a r y i n g degree o f a c c e s s i b i l i t y which had d e a l t w i t h each type o f f i n a n c i a l i n s t i t u t i o n . There was l i t t l e ; , p u r p o s e i n d e t a i l e d study o f p a r t i c u l a r types o f i n t e r m e d i a r i e s u n l e s s t h e i r f o r e s t r y investments were s i g n i f i c a n t . To choose which i n s t i t u t i o n s were r e l e v a n t b e f o r e the f i e l d study took p l a c e , judgement and a p r i o r i knowledge was a p p l i e d . Of those types s e l e c t e d f o r p r e l i m i n a r y study, c h a r t e r e d banks were deemed the most important s i n g l e '10 type o f f i n a n c i a l i n t e r m e d i a r y . Although banks o b t a i n funds from s h o r t term d e p o s i t s and have i n h e r e n t l y l i m i t e d c a p a b i l i t y f o r term l e n d i n g , they n e v e r t h e l e s s have demonstrated i n c r e a s i n g i n t e r e s t i n l o n g e r term l e n d i n g ; Removal o f the i n t e r e s t r a t e c e i l i n g w i t h the 1967 r e v i s i o n o f the Bank Act p r o b a b l y a s s i s t e d t h i s t r e n d , as d i d the p o p u l a r i t y o f term d e p o s i t s . Government sponsored l e n d i n g i n s t i t u t i o n s were a second type o f i n t e r m e d i a r y expected to be prominent. Examples i n c l u d e the economic development c o r p o r a t i o n s e s t a b l i s h e d by many p r o v i n c i a l governments t o extend g r a n t s or l o a n s to q u a l i f y i n g i n d u s t r i e s . The f e d e r a l Department of R e g i o n a l Economic Expansion (DREE) g i v e s s i m i l a r a s s i s t a n c e to i n d u s t r i e s p r o v i d i n g new jobs through expansion i n d e s i g n a t e d r e g i o n s . A l s o , the f e d e r a l I n d u s t r i a l Development Bank (IDB) i s an important p u b l i c l y - f i n a n c e d l e n d i n g i n s t i t u t i o n , from which s m a l l b u s i n e s s e s can r e q u e s t medium and l o n g term l o a n s i f unable to o b t a i n c r e d i t elsewhere under r e a s o n a b l e c o n d i t i o n s . Common to government sponsored i n s t i t u t i o n s i s the absence o f p r o f i t m aximization as the prime c o r p o r a t e o b j e c t i v e . I n s t e a d , they attempt to f o s t e r i n d u s t r i a l o r commercial development i n p a r t i c u l a r r e g i o n s and to p r o v i d e c a p i t a l when i t i s j u s t i f i e d , but p r i v a t e i n t e r m e d i a r i e s are unable or u n w i l l i n g to l e n d to the e x t e n t deemed a d v i s e a b l e . The purpose i s not to e n r i c h e n 11 e n t r e p r e n e u r s as much as i t i s to p r o v i d e s p i n - o f f b e n e f i t s t h rough d i r e c t and i n d i r e c t employment, t a x a t i o n , e t c e t e r a . By examining whether s p a t i a l d i f f e r e n c e s i n c r e d i t a v a i l a b i l i t y e x i s t d e s p i t e the o p e r a t i o n o f government l e n d e r s , the p r e s e n t t h e s i s c o u l d be viewed as a p r a c t i c a l e v a l u a t i o n o f the r a t i o n a l e and e f f e c t i v e n e s s o f government-sponsored l e n d i n g i n s t i t u t i o n s . Term f i n a n c e companies were another type o f i n s t i t u t i o n expected to be r e p r e s e n t e d . By o b t a i n i n g funds v i a bonds or debentures s o l d i n the c a p i t a l market, these s p e c i a l i z e d l e n d e r s are f r e e d o f s h o r t term c r e d i t o r o b l i g a t i o n s which a f f e c t c h a r t e r e d banks. S e v e r a l Canadian examples o f t h i s type o f i n s t i t u t i o n a re s u b s i d i a r i e s o f domestic c h a r t e r e d banks or bank consortiums, and may o b t a i n b u s i n e s s c l i e n t s r e f e r r e d from these banks. Commercial f i n a n c e companies would a l s o be i n v o l v e d . These l e n d e r s a re s i m i l a r t o the newer term l e n d i n g i n s t i t u t i o n s , except t h a t they u s u a l l y have s u b s t a n t i a l consumer f i n a n c e p o r t f o l i o s . Some commercial f i n a n c e companies are l u c r a t i v e s u b s i d i a r i e s spun o f f from parent companies i n the ma n u f a c t u r i n g f i e l d . F o r example, many l a r g e t r u c k and equipment manufacturers have founded such f i n a n c i a l i n t e r m e d i a r i e s p a r t i a l l y to he l p market t h e i r p r o d u c t s . U s u a l l y equipment d e a l e r -s h i p s can arrange f i n a n c i n g f o r a s a l e through the a f f i l i a t e d commercial f i n a n c e company, or i f none, 12 through another commercial f i n a n c e company which m a i n t a i n s a c l o s e working r e l a t i o n s h i p f o r mutual advantages. In the f i e l d study, f o r e s t r y f i r m managers were to be q u e s t i o n e d r e g a r d i n g t h e i r f i n a n c i n g e x p e r i e n c e s w i t h the f o r e g o i n g common types o f i n s t i t u t i o n s . Prom the answers, and from i n f o r m a t i o n on the r e l a t i v e l o c a t i o n and o t h e r c h a r a c t e r i s t i c s o f the b u s i n e s s e s , an e v a l u a t i o n would be made o f the h y p o t h e s i s t h a t f i n a n c i a l i n t e r -m e d i a r i e s are c o n s t r a i n e d by d i s t a n c e i n t h e i r b u s i n e s s l e n d i n g . I t was noted e a r l i e r t h a t the r a t i o n a l e f o r e x p e c t i n g i n s t i t u t i o n s t o be a f f e c t e d by d i s t a n c e was t h a t i n f o r m a t i o n need be c o l l e c t e d c o n c e r n i n g the p r o s -p e c t i v e borrower. T h i s a c t i v i t y i s a f f e c t e d by d i s t a n c e . The next chapter p r e s e n t s the hypotheses i n d e t a i l and reviews r e l e v a n t l i t e r a t u r e . The n a t u r e o f the i n f o r m a t i o n r e q u i r e d by i n s t i t u t i o n s . i s examined, as w e l l as r e a l world f a c t o r s which a c t i n the o p p o s i t e way, t h a t i s , to reduce the f r i c t i o n o f d i s t a n c e i n b u s i n e s s borrowing p a t t e r n s . 13 REFERENCES 6. H. Borts and J. L. Stein, "Regional Growth and Maturity in the United States; A Study of Regional Structural Change," Regional Analysis, ed. L. Needleman (Baltimore: Penguin Books,* 1968), pp. 159-197. 2 Harry W. Richardson, Elements of Regional  Economics (Baltimore: Penguin Books, 1970), p. 104. ^Mahlon R. Straszheim, "A Introduction and Overview of Regional Money Capital Markets," in Essays . in Regional Economics, eds. J. R. Meyer and J. F. Kairi (Cambridge: Harvard University Press, 1971), pp. 218-239. "*This discussion owes much to E. P. Neufeld, The Financial System of Canada (Toronto: MacMillan, 1972), pp. 1-33; also see H. H. Binhammer, Money, Banking and  the Canadian Financial System (Toronto: Methuen, 1972), pp. 153-65. -*Jj. E. Davis, Jonathon R. T. Hughes and . : -7, .': Duncan M. McDougall, American Economic History (Homewood: Irwin, 1965 ed), p. 223. 14 Chapter 2 SPATIAL ASPECTS OF THE FINANCIAL SYSTEM: A CRITICAL REVIEW OF THE LITERATURE INTRODUCTION The purpose of the second chapter is to report more of the "background considerations which affected the interview survey and subsequent analysis. The question to be answered from this chapter was whether the i n i t i a l thesis hypotheses were compatible with descriptions and conclusions of other writers on the subject. The findings, from the literature review and first-round discussions with specialists in finance and the forest industry, were that a case could be made for the thesis hypotheses, but support was not unanimous. This stage of the work was difficult because so much of the literature on finance is essentially descriptive and even laudatory in tone (the view from within). Actually, very l i t t l e objective analytical work has been done in Canada. Given the lack of a close-knit body of relevant research, i t was necessary to compare the thesis problem with concepts abstracted from a wide range of sources,, Although the diversity of source material broadened the perspective from which the problem was viewed, the 15 t r a d e - o f f was to have a much l e s s c o n c i s e re^searchj p r o p o s a l than was i n i t i a l l y v i s u a l i z e d . The f o l l o w i n g s e c t i o n s o f the p r e s e n t chapter i n d i c a t e how the o r i g i n a l hypotheses were expanded. Chapter Three shows how the expanded hypotheses were i n c o r p o r a t e d i n t o a d e s i g n f o r c o l l e c t i n g r e l e v a n t d a t a . CANADIAN GEOGRAPHERS ON THE FINANCIAL SYSTEM Geographers do not seem v e r y i n t e r e s t e d i n the i t o p i c of economic development. I t i s not s u r p r i s i n g then, t h a t l i t e r a t u r e r e l a t i n g the domestic f i n a n c i a l system to r e g i o n a l economic development i s almost non-2 e x i s t e n t . F o r t u n a t e l y , t h e r e have been s e v e r a l e x c e p t i o n s . Donald K e r r was the f i r s t Canadian geographer to •5 express i n t e r e s t i n the f i n a n c i a l system. K e r r ' s p r i m a r y purpose was to f u r t h e r e x p l a i n urban growth p r o c e s s e s . He d i s t i n g u i s h e d between g e n e r a l f i n a n c i a l s e r v i c e s ( f o r e.g., those o f neighbourhood branch banks), and primary f i n a n c i a l f u n c t i o n s , such as t r a d e i n f i n a n c i a l a s s e t s and l a r g e s c a l e lending.^" I t was r e c o g n i z e d t h a t g e n e r a l s e r v i c e f u n c t i o n s are p r o v i d e d w i t h i n w e l l -d e f i n e d market a r e a s . However, K e r r d i d not s p e c u l a t e on whether the s e c t o r i n g o f markets was due t o r e a l e f f e c t s o f d i s t a n c e or merely a d m i n i s t r a t i v e d e c i s i o n s o f the i n s t i t u t i o n s . By u s i n g employment s t a t i s t i c s , K e r r s i g n a l l e d h i s i n t e r e s t i n d i r e c t growth caused by expansion o f the f i n a n c i a l s e c t o r and l i n k e d support i n d u s t r i e s . 16 T h i s f a c t o r undoubtedly i s important to l a r g e r urban c e n t e r s and i n t e r m e d i a t e - s i z e d r e g i o n a l c e n t e r s . I n s o f a r as i t a f f e c t e d the p r e s e n t t h e s i s problem, K e r r ' s a r t i c l e was d i s a p p o i n t i n g . The d i f f i c u l t y stems from h i s f a i l u r e to s p e c u l a t e on v a r i o u s e f f e c t s o f space and d i s t a n c e on the f i n a n c i a l system, ( o r a too-ready acceptance t h a t space i s i r r e l e v a n t ) . r T h i s s h o r t f a l l i s p r o v o c a t i v e , s i n c e i t meant t h a t no comments co u l d be made on p o s s i b l e i n d i r e c t r e g i o n a l impacts o f the f i n -a n c i a l s e c t o r - p a r t i c u l a r l y from uneven a v a i l a b i l i t y o f l o a n c a p i t a l . i Another Canadian geographer s t u d i e d the f i n a n c i a l system i n more d e t a i l i n a d o c t o r a l d i s s e r t a t i o n . U s i n g a q u a l i t a t i v e approach, Code t r a c e d the e v o l u t i o n o f the main Canadian f i n a n c i a l c e n t e r s from t h e i r b e g i n n i n g s to t h e i r modern s t a t u e . His purpose was to e x p l a i n "the geography o f h i g h e r - l e v e l f i n a n c i a l d e c i s i o n - m a k i n g , l a r g e l y i n terms o f the need f o r f i n a n c i a l i n t e l l i g e n c e . " ^ Code suggested f a c t o r s which helped e x p l a i n the s p a t i a l e v o l u t i o n o f c e n t e r s i n which h i g h e r l e v e l d e c i s i o n - m a k i n g takes p l a c e j "(1) The r e l a t i v e s i z e s o f the i n d i v i d u a l f i n a n c i a l communities a t any given t ime. (2) The n a t u r e o f the investment o p p o r t u n i t i e s w i t h which the f i n a n c i a l communities are d e a l i n g , and; (a) whether th e r e i s a g r e a t d e a l o f u n c e r t a i n t y i n v o l v e d i n the i n v estments. (b) whether t h i s h i g h u n c e r t a i n t y i n d u s t r y i f ( s i c ) l o c a l i z e d i n a f a i r l y n a r r o w l y d e f i n e d r e g i o n . (3) The mass o f i n f o r m a t i o n r e q u i r e d i n r e l a t i o n t o i t s v a l u e . 1 7 (4) The i n h e r e n t need f o r u n c e r t a i n t y r e d u c i n g i n f o r m a t i o n . ( 5 ) The s a v i n g s i n c u r r e d from a g g l o m e r a t i n g . (6) S u s t a i n i n g power i n the l o c a l economy, y ( 7 ) The s t a t e o f the communications system." Code viewed f i n a n c e from a d i f f e r e n t p e r s p e c t i v e than the p r e s e n t t h e s i s . However, the above r e l a t i o n s h i p s have i m p l i c a t i o n s f o r the a v a i l a b i l i t y of f i n a n c e f o r s m a l l f o r e s t i n d u s t r y companies. The f i r s t r e l a t i o n s h i p p r e d i c t s t h a t i f t h e r e i s a p o s s i b l e c h o i c e i n a f i n a n c i a l d e c i s i o n - m a k i n g l o c a t i o n between a l a r g e or s m a l l c e n t e r , the d e c i s i o n would be made i n the l a r g e r c e n t e r . To a c h i e v e such r e s u l t , the whole d e c i s i o n - m a k i n g p r o c e s s must be t r a n s f e r r e d from the r u r a l s i t e o f the proposed f o r e s t r y investment i n t o the l a r g e r c e n t e r . I f the t r a n s f e r i s as simple as t h a t t h e r e can be no f r i c t i o n o f d i s t a n c e a f f e c t i n g l e n d i n g , an h y p o t h e s i s i n sharp c o n t r a s t to those o f the p r e s e n t t h e s i s . The p a r t i a l c o n s i s t e n c y of Code's h y p o t h e s i s w i t h a c t u a l i n t e r n a l d e c i s i o n - m a k i n g of c h a r t e r e d banks i s ' d i s c u s s e d below. The second r e l a t i o n s h i p could be r e p h r a s e d to s t a t e t h a t h i g h u n c e r t a i n t y investments r e q u i r e l e n d i n g d e c i s i o n s to take p l a c e n e ar the i n d u s t r y r e t i r i n g c a p i t a l . T h i s r e l a t i o n s h i p a l i g n s very w e l l w i t h the hypotheses o f the p r e s e n t t h e s i s , i n t h a t l e n d e r s s h o u l d r e q u i r e good a c c e s s i b i l i t y to any f o r e s t r y investment which has h i g h u n c e r t a i n t y o f s u c c e s s . The t h i r d r e l a t i o n s h i p i s complex. B a s i c a l l y , i t means t h a t h i g h v a l u e investments can take p l a c e from l o n g d i s t a n c e s away because the i n f o r m a t i o n t r a n s f e r 18 c o s t s are more n e g l i g i b l e r e l a t i v e to the t o t a l l o a n v a l u e . The m e r i t o f t h i s r e l a t i o n s h i p i s more q u e s t i o n a b l e than the o t h e r s , as i s d i s c u s s e d f u r t h e r i n the d e s c r i p t i o n o f bank l o a n a d m i n i s t r a t i o n , below. The f o u r t h r e l a t i o n s h i p i s s i m i l a r to the second, except t h a t Code elsewhere r e f e r r e d to c o n t a c t between i n s t i t u t i o n s i n the f i n a n c i a l c e n t e r as the source o f u n c e r t a i n t y - r e d u c i n g i n f o r m a t i o n . The f i f t h r e l a t i o n s h i p d e a l s w i t h q u a s i - a d m i n i s t r a t i v e d e c i s i o n s on w e i g h t i n g monetary and non-monetary c o s t s when not i n c o n t a c t w i t h - o t h e r f i n a n c i a l i n s t i t u t i o n s , a f a c t o r o f l i t t l e r e l e v a n c e h e r e . The s i x t h r e l a t i o n s h i p r a i s e s the q u e s t i o n o f whether t h e r e w i l l be enough l o a n b u s i n e s s generated i n o u t l y i n g r e g i o n s f o r i t t o pay to have permanent branches o r l o a n s o f f i c e r s i n those a r e a s . The seventh r e l a t i o n s h i p r e f e r s to the s t a t e o f the communications system, an o b v i o u s l y important c o n s i d e r a t i o n i n b o t h s e e k i n g and g r a n t i n g l o a n s . O v e r a l l , Code's r e l a t i o n s h i p s d i d not g i v e a c l e a r i n d i c a t i o n o f what to expect r e g a r d i n g s p a t i a l v a r i a t i o n s i n c r e d i t a v a i l a b i l i t y . The g e n e r a l sense o f h i s t h e o r y i s t h a t g i v e n modern communications, l e n d i n g should be f r i c t i o n - f r e e and f e a s i b l e from c e n t r a l i z e d l a r g e urban communities. However, t h i s p r e d i c t i o n i s hedged by r e c o g n i t i o n t h a t h i g h - u n c e r t a i n t y investments r e q u i r e more i n f o r m a t i o n . At the o u t s e t of the p r e s e n t study, the extent o f i n t u i t i v e disagreement w i t h Code's e v a l u a t i o n was l a r g e , but t h i s d i m i n i s h e d as the survey 19 r e s u l t s 1)6081116 known. A t t h i s p o i n t , i t i s r e l e v a n t to i n d i c a t e some o f Code's weaker r e l a t i o n s h i p s , which remain as minor p o i n t s o f disagreement. The c r i t i c a l e v a l u a t i o n i s accomplished by comparing Code's t h e o r y t o the a d m i n i s t r a t i v e procedures f o r g r a n t i n g bank l o a n s . The h i e r a r c h i a l n a t u r e o f d e c i s i o n - m a k i n g i n g Canadian c h a r t e r e d banks i s r e a s o n a b l y well-documented. Branch managers c o l l e c t background d a t a on a l o a n a p p l i c a t i o n , and make a recommendation to approve or deny the r e q u e s t . I f the l o a n i s approved and w i t h i n the " d i s c r e t i o n a r y l e n d i n g l i m i t s " o f the p a r t i c u l a r manager, the funds a r e g r a n t e d . B a s i c a l l y , the d i s c r e t i o n a r y l e n d i n g l i m i t s are s e t a c c o r d i n g t o - the s i z e and l o c a t i o n o f the branch, the manager's a b i l i t y , and the type o f l o a n (how f u l l y secured, e t c . ) . Approved l o a n r e q u e s t s above the manager's l i m i t s are r e f e r r e d to r e g i o n a l o f f i c e , where the l o a n o f f i c e r s have h i g h e r d i s c r e t i o n a r y l i m i t s . Loans above t h i s l e v e l are t r a n s m i t t e d t o head o f f i c e , where s e n i o r l o a n o f f i c e r s have r e l a t i v e l y h i g h l i m i t s . Loans above t h e i r l e v e l are r e f e r r e d to the Board o f D i r e c t o r s f o r a p p r o v a l . No a p p l i c a t i o n i s c o n s i d e r e d a t a h i g h e r l e v e l u n l e s s i t was p r e v i o u s l y recommended by a l l o f f i c e r s a t s u b o r d i n a t e l e v e l s . The r e l a t i o n s h i p h y p o t h e s i z e d by Code, between the v a l u e o f the mass of p a r t i c u l a r i n f o r m a t i o n and the d i s t a n c e i t w i l l be t r a n s m i t t e d , i s s u p e r f i c i a l l y c o n s i s t e n t w i t h the f o r e g o i n g d e s c r i p t i o n . However, i t i s not s u f f i c i e n t as a c a u s a l e x p l a n a t i o n and o t h e r 20 important f a c t o r s a f f e c t t h i s r e l a t i o n s h i p . Por example, the r e i s i n c e n t i v e to c a r e f u l l y r a t i o n the more v a l u a b l e time o f the few l o a n e v a l u a t i o n o f f i c e r s a t head o f f i c e , whose e x t e n s i v e e x p e r i e n c e and t r a i n i n g enable them to make sound judgements on v e r y l a r g e i n v e s t m e n t s . N a t u r a l l y , t h i s i s accomplished by d e l e g a t i n g some a u t h o r i t y to o t h e r s w i t h l e s s e x p e r i e n c e o r s k i l l s but who can handle l o w e r - r i s k i n v e s t m e n t s . A l s o , the l o a n a p p r o v a l methods p r o v i d e p h y s i c a l d i s s o c i a t i o n o f the s e n i o r investment o f f i c e r s from the p r i n c i p a l s r e q u e s t i n g the l o a n . T h i s s o c i a l i n s u l a t i o n reduces the p o s s i b i l i t y o f p e r s o n a l p e r s u a s i o n i n f l u e n c i n g the judgement o f the f i n a n c i a l o f f i c e r . Losses through poor investments would be g r e a t e r f o r l a r g e l o a n s , t h e r e f o r e l a r g e l o a n s i n p a r t i c u l a r a r e s h i e l d e d i n t h i s manner. T h i s b i a s f a c t o r i s a l s o one reason f o r the f r e q u e n t t r a n s f e r o f branch p e r s o n n e l who are d i r e c t l y exposed to the p r i n c i p a l s i n investment s i t u a t i o n s . Costs o f t r a n s m i t t i n g , l o a n i n f o r m a t i o n a r e not a c o n v i n c i n g c a u s a l e x p l a n a t i o n o f the l o c a t i o n o f f i n a n c i a l d e c i s i o n - m a k i n g . I n s t e a d , the s i g n i f i c a n t i n f o r m a t i o n - r e l a t e d c o s t s are f e l t to be i n c o l l e c t i n g and v e r i f y i n g the i n f o r m a t i o n , and most i m p o r t a n t l y , c o r r e c t l y i n t e r p r e t i n g i t . A more c o n v i n c i n g e x p l a n a t i o n o f d e c i s i o n - m a k i n g l o c a t i o n i s to ask where the q u a l i f i e d l o a n s o f f i c e r s are l o c a t e d who can i n t e r p r e t i n f o r m a t i o n so as to reduce r i s k s to the i n s t i t u t i o n . T h i s c r i t i c i s m i s not a b l a n k e t condemnation o f Code's work, because 21 he does concern h i m s e l f w i t h the l o c a t i o n f a c t o r s o f key c r e d i t o f f i c e r s . C o n s i d e r a b l e d e c e n t r a l i z a t i o n o f d e c i s i o n - m a k i n g has r e c e n t l y o c c u r r e d , p r i m a r i l y due to t h e f o r c e s o f i n c r e a s e d r e g i o n a l c o m p e t i t i o n and a s i g n i f i c a n t p o l i t i c a l b a c k l a s h a g a i n s t the p r o p e n s i t i e s o f banks t o make the more important l o a n d e c i s i o n s i n c e n t r a l C a n a d a . ^ However, w i t h i n c r e a s i n g l y e f f i c i e n t communications, g r e a t e r c e n t r a l i z a t i o n o f d e c i s i o n - m a k i n g would have been p r e d i c t e d by Code's t h e o r y . I t seems obvious t h a t the l o c a t i o n o f h i g h l e v e l f i n a n c i a l d e c i s i o n - m a k i n g i s i n f l u e n c e d more by s t r a t e g i c management d e c i s i o n s on where t o l o c a t e key p e r s o n n e l , than by the c o s t s o f t r a n s m i t t i n g i n f o r m a t i o n . Code made r e l e v a n t o b s e r v a t i o n s on the d i f f e r e n t i a l importance o f d i s t a n c e i n the v a r i o u s l e v e l s o f d e c i s i o n -making. The o p e r a t i o n o f a c h a r t e r e d bank i s i l l u s t r a t e d g r a p h i c a l l y i n F i g u r e 2 - 1 , which t r a c e s the fl o w o f i n f o r m a t i o n from a p o s s i b l e investment s i t e to d e c i s i o n , p o i n t s at branch, r e g i o n a l and h e a d - o f f i c e l e v e l s . D i s t a n c e s o f unknown l e n g t h s are s i g n i f i e d -by broken l i n e s between the nodes, w i t h i n t e r n a l communications ( d o t t e d l i n e s ) d i f f e r e n t i a t e d from e x t e r n a l communications (dashed l i n e s ) o f the i n t e r m e d i a r y . 22 F i g u r e 2.1 DISTANCE COMPONENTS IN CHARTERED BANKING OPERATIONS geographic space Q ? . D Other Institutions in Financial Community Investment Situation Branch Office Regional Office In d e s c r i b i n g the i n t e r n a l l i n k a g e s o f major O Head Office f i n a n c i a l d i s t r i c t s , Code concluded t h a t a s t r o n g f r i c t i o n o f d i s t a n c e was o b s e r v a b l e (see d i s t a n c e d ) . As a r e s u l t , the f i n a n c i a l d i s t r i c t s tend to be compact. I n s t i t u t i o n s such as i n s u r a n c e companies, which show l i t t l e a f f i n i t y f o r such d i s t r i c t s , were e x p l a i n e d i n terms o f l e s s e r needs f o r u n c e r t a i n t y - r e d u c i n g i n f o r m a t i o n . H i s t h e o r y d e s c r i b e s the s i t u a t i o n f o r t h i s type o f s p a t i a l environment r e a s o n a b l y w e l l . Code's t h e o r y p r e d i c t s t h a t as communications technology i n c r e a s e s i n e f f i c i e n c y , f r i c t i o n o f d i s t a n c e d e c r e a s e s , u n t i l " . . . d i s t a n c e from a f i n a n c i a l community becomes i n e l e v a n t as a f a c t o r i n f l u e n c i n g the q u a l i t y o f 11 s e r v i c e which i t i s a b l e to p r o v i d e . " I f one s e p a r a t e s the d i s t a n c e components as has been done i n F i g u r e 2.1, then Code's p r e d i c t i o n may be o n l y p a r t i a l l y c o r r e c t . E f f i c i e n t t e c h n o l o g y w i l l p r o v i d e e a s i e r i n t e r n a l communications f o r a f i n a n c i a l i n t e r m e d i a r y , t h a t i s , d i s t a n c e s 'b' and »c'. However, i t i s not obvious t h a t 23 e x t e r n a l communications i n v o l v e d i n d i s t a n c e 'a' w i l l b e n e f i t . Code s t r e s s e d t h a t the fundamental reason f o r f r i c t i o n o f d i s t a n c e w i t h i n c e n t r a l f i n a n c i a l d i s t r i c t s was the s u s t a i n e d need f o r u n c e r t a i n t y - r e d u c i n g i n f o r m a t i o n . Because much of the i n f o r m a t i o n i s d e r i v e d i n f o r m a l l y , i t i s u n s t a n d a r d i z e d and d i f f i c u l t to t r a n s f e r . Between members o f a f i n a n c i a l community, c l o s e and fr e q u e n t c o n t a c t develops a bond o f t r u s t and good w i l l . While o t h e r f a c t o r s may a l s o be important, i t i s worthwhile t o u n d e r l i n e the s t a t e d r e l a t i o n s h i p between p e r s o n a l communications and f r i c t i o n o f d i s t a n c e . Code completely o v e r l o o k e d the importance o f t h i s r e l a t i o n s h i p i n c o n t a c t s between branch p e r s o n n e l and people r e q u e s t i n g l o a n s . I t i s argued i n the p r e s e n t t h e s i s t h a t f r i c t i o n o f d i s t a n c e i s j u s t as pronounced i n the r e l a t i o n s h i p between a p r o s p e c t i v e borrower and the l o a n s o f f i c e r o f an i n t e r m e d i a r y . S m a l l e r b u s i n e s s e s have h i g h u n c e r t a i n t i e s a s s o c i a t e d w i t h t h e i r o p e r a t i o n s . One common source o f u n c e r t a i n t y i s the r e l a t i v e dependency of the suc c e s s o f the b u s i n e s s on the s k i l l s and competence o f the owner. I n t e r m e d i a r i e s d e a l i n g w i t h such b u s i n e s s e s r e q u i r e s u f f i c i e n t c u r r e n t i n f o r m a t i o n t o be a b l e t o reduce t h e i r u n c e r t a i n t y . The da t a which have to be gathered f o r the l o a n a re i n i t i a l l y u n s t a n d a r d i z e d , and e f f o r t i s r e q u i r e d by both p a r t i e s t o produce t h i s d a t a i n a s t a n d a r d manner. Communications r e q u i r i n g p e r s o n a l t r a v e l such as i n t e r v i e w s and f i e l d i n s p e c t i o n s w i l l o c c u r . S i m i l a r l y , 24 because i t i s d i f f i c u l t t o q u a n t i f y a l l f a c t o r s i n v o l v e d , a degree o f t r u s t and good w i l l i s e s s e n t i a l f o r many types of l o a n s . B e t t e r p e r s o n a l r e l a t i o n s h i p s a r e f o s t e r e d by more f r e q u e n t c o n t a c t , i n s t i t u t i o n a l p o l i c y on t r a n s f e r r i n g l o a n s o f f i c e r s n o t w i t h s t a n d i n g . In h i s p e r s p e c t i v e o f the geography o f f i n a n c e , i t i s c l e a r t h a t Code u n d e r s t a t e d the importance o f g e n e r a l f i n a n c i a l s e r v i c e s , as d i d K e r r p r e v i o u s l y . Both geog-raphers were e s s e n t i a l l y p r e o c c u p i e d w i t h e x p l a i n i n g the growth and d i s t r i b u t i o n o f h i g h l e v e l f i n a n c i a l f u n c t i o n s . However, e s p e c i a l l y i n terms o f d e c i s i o n s r e g a r d i n g bank l o a n s , the l o a n s o f f i c e r s i n the f i e l d a r e a l l - i m p o r t a n t . As one w r i t e r noted, (even b e f o r e the p e r i o d o f g r e a t e r d e c e n t r a l i z a t i o n o f bank d e c i s i o n -making) : "Less than 10 p e r c e n t by number o f a l l l o a n r e q u e s t s have to be r e f e r r e d to d i s t r i c t o f f i c e s f o r a u t h o r i z a t i o n and l e s s than 1 percent o f a l l l o a n r e q u e s t s have to be r e f e r r e d a l l the way up to head o f f i c e f o r a u t h o r i z a t i o n . " Much remains t o be l e a r n e d i n the geography o f f i n a n c e , t h e r e f o r e , p a r t i c u l a r l y by e x p l o r i n g the r e l a t i o n s h i p s between g e n e r a l f i n a n c i a l s e r v i c e s and economic growth o u t s i d e the core f i n a n c i a l d i s t r i c t s . A s i d e from the f o r e g o i n g work on the Canadian f i n a n c i a l system, i n c i d e n t a l c o n t r i b u t i o n s to the geography of f i n a n c e have appeared i n l o c a t i o n t h e o r y . F o r example, Hoover suggested i n an e a r l y work t h a t d i f f e r e n c e s i n sources o f f i n a n c e i n f l u e n c e i n d u s t r i a l l o c a t i o n p a t t e r n s and the degree of c o r p o r a t e 25 1*5 c o n c e n t r a t i o n . In h i s example, c r e d i t was extended by e a s t e r n manufacturers to r e t a i l e r s i n the c a p i t a l -s h o r t west and south. T h i s caused a c o n c e n t r a t i o n o f l a r g e manufacturers i n the e a s t , as the burden o f r e t a i l t r a d e f i n a n c i n g was too much f o r s m a l l s c a l e c o m p e t i t i o n . Canadian banks are a b l e t o s h i f t c r e d i t t o which ever branch r e q u e s t s i t , but the concept may s t i l l be u s e f u l s i n c e l a r g e t r a c t s o f Canada are undeveloped. Resource e x t r a c t i o n and s i m i l a r a c t i v i t i e s may have to be supported by f i n a n c i n g extended w i t h i n t h e i n d u s t r y , p a r t i c u l a r l y where f i e l d o p e r a t i o n s are s m a l l and i n a c c e s s i b l e to f i n a n c i a l i n s t i t u t i o n s . In the B r i t i s h Columbia f o r e s t i n d u s t r y , the l o g g i n g c o n t r a c t o r s who cut and t r a n s p o r t timber f o r the m i l l s seem to f i t the d e s c r i p t i o n i d e a l l y . As timber e x p l o i t a t i o n pushes f u r t h e r i n t o i n a c c e s s i b l e a r e a s , the i m p l i c a t i o n s f o r c o r p o r a t e c o n c e n t r a t i o n i n f o r e s t r y are o b v i o u s . T h e r e f o r e , an a d d i t i o n a l q u e s t i o n f o r the t h e s i s to answer was whether s m a l l o p e r a t o r s r e c e i v e f i n a n c i n g from an o t h e r f o r e s t company. Hoover a l s o p o i n t e d out i m p l i c a t i o n s o f the l e a s i n g form o f f i n a n c i n g . 1 " * L e a s i n g allowed o p e r a t o r s more freedom from f i n a n c i a l i n s t i t u t i o n s and p l a c e d the onus f o r f i n a n c e on the equipment d e a l e r s h i p . A l s o , overhead c o s t s are minimized, and men w i t h l i t t l e c a p i t a l c o u l d get i n t o b u s i n e s s and a t l e a s t make good wages as o p e r a t o r s . Together, these e f f e c t s caused the i n d u s t r y to be l e s s c o n c e n t r a t e d . Again, a p p l i c a t i o n to the f o r e s t i n d u s t r y seemed l i k e l y , s i n c e t h e r e are so many independent 26 c o n t r a c t o r s c u t t i n g and h a u l i n g l o g s f o r companies o p e r a t i n g saw m i l l s or p u l p m i l l s . The hypotheses o f t h e p r e s e n t t h e s i s are l a r g e l y c o n s i s t e n t w i t h modern c e n t r a l p l a c e t h e o r y . However, i t i s r e l e v a n t to p o i n t out one d i f f e r e n c e between the l e n d i n g f u n c t i o n and the o t h e r g e n e r a l f u n c t i o n s o f r e t a i l and s e r v i c e i n d u s t r i e s f o r which c e n t r a l p l a c e t h e o r y has a p p l i c a t i o n . In p a r t i c u l a r , the l e n d i n g f u n c t i o n seems fund-a m e n t a l l y d i f f e r e n t because the i n f o r m a t i o n a l requirements g i v e r i s e t o a two-way f r i c t i o n o f d i s t a n c e i n the r e l a t i o n s h i p between customer and s u p p l i e r . In c o n t r a s t , when a customer r e q u e s t s a consumer good from a r e t a i l e r and has the r e q u i r e d payment, he n o r m a l l y r e c e i v e s the good on demand and t h e t r a n s a c t i o n i s completed. In o t h e r than a s t r o n g b u y ers' market, the c o s t s o f s e l e c t i o n , d e l i v e r y and s e r v i c i n g o f p h y s i c a l goods a r e borne by the customer. Hence the f r i c t i o n o f d i s t a n c e o f the t r a n s a c t i o n i s e n t i r e l y on the customer's s i d e . U n l e s s some form o f c r e d i t i s r e q u e s t e d , t h e r e i s no i n f o r m a t i o n which the s u p p l i e r o f the good or s e r v i c e must c o l l e c t i n o r d e r to complete the t r a n s a c t i o n . The f i n a n c i a l i n s t i t u t i o n p r o t e c t s i t s s e l f -i n t e r e s t s by imposing i n f o r m a t i o n a l requirements s u f f i c i e n t t o a l l a y the r i s k s i n v o l v e d : " . . . o f course, the l e n d i n g p r o c e s s i s a two-way arrangement. I t i s one t h i n g f o r p r o s p e c t i v e borrowers to r e q u e s t an advance o f f u n d s . The l e n d i n g bank has to be sure o f g e t t i n g i t s funds back. The a c t o f l e n d i n g 27 money, a g a i n , i s n o t l i k e a f i n a l s a l e , once completed to be f o r g o t t e n about. The money l e n t i s expected t o be r e t u r n e d . Hence, n e g o t i a t i o n between customer and bank i s n e c e s s a r y d u r i n g which the a b i l i t y and w i l l i n g n e s s o f the p r o s p e c t i v e borrower to repay has to be a s s e s s e d and the c r e d i t r i s k c o n s i d e r e d . " 5 The f i n a n c i a l i n s t i t u t i o n i s r e s p o n s i b l e f o r overcoming the f r i c t i o n o f d i s t a n c e a s s o c i a t e d w i t h i t s i n v e s t i g a t i o n s , but no comparable c o s t s e x i s t f o r r e t a i l i n g and s e r v i c e f u n c t i o n s . More than a n y t h i n g e l s e , the p r e c e e d i n g d i s c u s s i o n has i s o l a t e d i n f o r m a t i o n f a c t o r s as b e i n g c r u c i a l t o the geography o f f i n a n c e . As A l l a n Pred has commented, r e c o g n i t i o n o f the r e l e v a n c e o f i n f o r m a t i o n to geography i s r e c e n t , but b r o a d l y based: "Perhaps the most t e l l i n g inadequacy o f c l a s s i c a l t h e o r y i s i t s n e g l e c t o f i n f o r m a t i o n as a l o c a t i o n f a c t o r . In r e c e n t y e a r s many w r i t e r s have commented both on the d e c l i n i n g r o l e o f t r a n s p o r t a t i o n as a l o c a t i o n a l d e t e r -minant and on the growing impact of i n f o r m a t i o n , e s p e c i a l l y as an i n f l u e n c e on the l o c a t i o n o f a d m i n i s t r a t i v e u n i t s w i t h i n i n d u s t r i a l and n o n - i n d u s t r i a l o r g a n i z a t i o n s . ...Information c o s t s a r e o f growing importance t o the c a l c u l u s o f - i n d u s t r i a l l o c a t i o n p a r t l y due t o the i n c r e a s i n g volume o f e x e c u t i v e and c l e r i c a l time a l l o c a t e d to i n t r a o r g a n i z a t i o n a l and i n t e r o r g a n i z a ' t i o n a l f a c e - t o - f a c e c o n t a c t s . Another f a c t o r i s t h e mounting monetary a l l o c a t i o n s t o the t a s k s o f g a t h e r i n g , p r o c e s s i n g and b e n e f i c i a t i n g i n f o r m a t i o n f o r o p e r a t i o n a l and i n n o v a t i v e decisions-making purposes... L o c a t i o n a l v a r i a t i o n s i n the a v a i l a b i l i t y o f i n f o r m a t i o n a l s o i n f l u e n c e l o c a t i o n a l c h o i c e s i n s o f a r as they b i a s the range o f known oppor-t u n i t i e s and permit u n c e r t a i n t y to be reduced more e a s i l y i n some p l a c e s than i n o t h e r s . " OMISSIONS IN THE LITERATURE Before u n d e r t a k i n g the f i e l d survey, the w r i t e r d i s c u s s e d the h y p o t h l s e s o f t h i s t h e s i s w i t h persons e x p e r i e n c e d i n f i n a n c e o r f o r e s t r y f i n a n c i n g . These d i s c u s s i o n s helped to r e v e a l f a c t o r s t h a t c o u l d cause a b e r r a t i o n s i n the a v a i l a b i l i t y o f f i n a n c e , but which had l i t t l e t o do w i t h d i s t a n c e o r a c c e s s i b i l i t y . These f a c t o r s are not mentioned t o any e x t e n t i n the l i t e r a t u r e , even though i t i s n e c e s s a r y t o be aware of t h e i r e f f e c t s to determine what a c t u a l l y was causing any d e v i a t i o n s found i n the a v a i l a b i l i t y o f f i n a n c e . 1. L e n d i n g on Weight o f C h a r a c t e r In a s s e s s i n g b u s i n e s s l o a n a p p l i c a t i o n s , l o a n s o f f i c e r s tend to weight h i g h l y the c h a r a c t e r o f the p r i n c i p a l s . T h i s p r a c t i c e i s d e s c r i b e d o n l y v a g u e l y i n the l i t e r a t u r e , but seems to r e q u i r e c l o s e a c c e s s between 17 the l o a n o f f i c e r and the businessman. Given good a c c e s s , t h e c r e d i t o f f i c e r i s a l s o i n a p o s i t i o n to supplement d i r e c t o b s e r v a t i o n s by i n d i r e c t i n f o r m a t i o n gained from the community a t l a r g e , f o r example, the businessman's s u p p l i e r s or customers. Once the b u s i n e s s -man i s shown to possess good c h a r a c t e r and b u s i n e s s acumen, some r e l a x a t i o n of l o a n p o l i c y may r e s u l t such as l e s s r e s t r i c t i v e s e c u r i t y p r o v i s i o n s and a more generous l i n e o f c r e d i t . The e f f e c t o f ' l e n d i n g on weight o f c h a r a c t e r ' i s t o i n c r e a s e the s t a b i l i t y o f e x i s t i n g f i n a n c i n g .29 p a t t e r n s , a t l e a s t over the s h o r t term. However, d i s r u p t i o n s can cause u n c e r t a i n t y , as was noted i n an e a r l y study o f one banking system: "A sound banker who knows a d i s t r i c t o f twelve o r f i f t e e n hundred square m i l e s i s s u r e l y i n a b e t t e r p o s i t i o n f o r a c o n s i d e r a b l e time to c a r r y on b u s i n e s s than an equ ( s i c ) e q u a l l y 1 s o u n d banker who e n t e r s upon the f i e l d as a s t r a n g e r . " "...(When a manager i s t r a n s f e r r e d ) , i f a bond o f co n f i d e n c e t h a t should e x i s t between a banker and h i s c l i e n t has been formed, i t i s broken and must be r e c r e a t e d . T h i s n e c e s s a r i l y takes time. Reading the r e c o r d o f a c l i e n t ' s t r a n s a c t i o n s w i t h t h e branch may g i v e a new manager some c l u e to the n a t u r e o f h i s customer but i t i s a poor s u b s t i t u t e f o r p e r s o n a l knowledge. More-over, the bond to be tr u e and of va l u e t o each must be r e c i p r o c a l . The customer has not the advantage o f a study o f t h e new manager's r e c o r d . In u n c e r t a i n t y and doubt he must wait and l e a r n by e x p e r i e n c e . " y Businessmen unhappy w i t h banking arrangements can s w i t c h banks. In the past t h i s procedure may not have been welcomed, s i n c e t h e r e was m i s t r u s t o f such •renegade', businessmen f o s t e r e d by the h i s t o r y o f l i t t l e c o m p e t i t i o n between banks. Such an a t t i t u d e would not be as common now g i v e n the g r e a t e r degree o f c o m p e t i t i o n . A t any r a t e , a businessman changing banks would l o s e h i s good c h a r a c t e r s t a t u s ( i f he had ac h i e v e d t h i s ) , s i n c e a t the l a t e s t bank he would be a new customer about whom n o t h i n g would be on r e c o r d . 2. P e r s o n a l i t y o f Loans O f f i c e r s V a r i a t i o n s i n q u a l i t y o f loan s e r v i c e c o u l d a r i s e from the p e r s o n a l i t i e s o f the loan s o f f i c e r s . Some a r e more c o n s e r v a t i v e i n e v a l u a t i n g the s u b j e c t i v e a s p e c t s o f l o a n s , w h i l e o t h e r s would take a more o p t i m i s t i c view. 30 R e l a t e d to p e r s o n a l i t y i s how w e l l l o a n s o f f i c e r s l i k e t h e i r job, and whether they are w i l l i n g to put out s p e c i a l e f f o r t t o look a f t e r a borrower's needs. The matter was put r a t h e r s u c c i n c t l y by one o b s e r v e r o f Canadian banking: "Granted, t h e r e i s a good d e a l o f v a r i a t i o n w i t h r e s p e c t to i n d i v i d u a l managers and what they w i l l do f o r t h e i r customers. However, i t remains t h a t a 'good manager' w i l l always take care o f h i s r e g u l a r customers. I f i t means g o i n g back to the o f f i c e i n the evening and t a k i n g o f f h i s coat and working i n t o the n i g h t , a good manager w i l l do i t , i f t h a t i s what i s n e c e s s a r y to s t r a i g h t e n out a customer's problem. Some guys, o f course, are ' n i n e - t o - f i v e ' w o r k e r s and j u s t do t h e job f o r the money. These l a t t e r managers a r e n o t ? a l l t h a t h e l p f u l t o c l i e n t s n eeding a d v i c e and so on." Commenting on much the same a s p e c t o f banking, a r e c e n t l y -r e t i r e d branch manager ( w i t h over 40 y e a r s o f s e r v i c e ) , went s e v e r a l steps f u r t h e r : "There i s a s a y i n g amongst bankers t h a t t h e r e are two k i n d s o f managers; the 'counter-jumpers' and the •bookworms'. As f a r as r u n n i n g a branch completely by the book goes, i f you f o l l o w e d a l l the r u l e s you would crack up. The people who l i v e by the r u l e - b o o k don't l a s t , except i n h e a d - o f f i c e , which is^where they s h o u l d be. The r u l e s are made to be winked a t . " Enthusiasm which l o a n s o f f i c e r s c a r r y i n t o t h e i r work would be r e f l e c t e d i n the r e l a t i o n s h i p s w i t h customers. I t seems probable t h a t businessmen would even base t h e i r c h o i c e o f f i n a n c i a l i n s t i t u t i o n s o l e l y on t h i s f a c t o r . 3. I n t e r - i n s t i t u t i o n Competition One>other reason why a borrower may not p a t r o n i z e the most convenient i n s t i t u t i o n i s r e l a t e d t o c o m p e t i t i o n . I f a f i n a n c i a l i n s t i t u t i o n i s a g g r e s s i v e and w i l l g r a n t C more f a v o r a b l e l o a n s , then customers s h o u l d be drawn . 31 from a l a r g e r market a r e a . A d m i t t e d l y , t h e r e i s con-t r o v e r s y r e g a r d i n g c o m p e t i t i o n i n f i n a n c e , w i t h c r i t i c s c h a r g i n g t h a t t h e r e i s c o m p e t i t i o n i n terms o f s e r v i c e but no r e a l p r i c e c o m p e t i t i o n ( t h a t i s , cheaper l o a n s or h i g h e r d e p o s i t i n t e r e s t r a t e s ) . An extreme view r e g a r d i n g c o m p e t i t i o n was g i v e n by S e a r s : " ( t ) h e c o m p e t i t i o n between f i n a n c i a l i n s t i t u t i o n s i n l e n d i n g to s m a l l b u s i n e s s i s so m i n i s c u l e as to be i r r e l e v a n t to the s u b j e c t o f 22 s m a l l b u s i n e s s f i n a n c i n g . " Sear's c o n c l u s i o n c o u l d not be v a l i d f o r a l l times and p l a c e s . H i s i n f o r m a t i o n r e l a t e s t o Nova S c o t i a i n the e a r l y 1960's- and i t probably i s d i f f e r e n t i n B r i t i s h Columbia d u r i n g the 1970's. There have been changes i n the f i n a n c i a l system i n the i n t e r v e n i n g decade; 2*5 f o r example, r e g a r d i n g government r e g u l a t i o n s , ^ and new e n t r i e s i n banking and o t h e r f i e l d s such as term l e n d i n g . Mpreover, B r i t i s h Columbia's r e g i o n a l economy i s more gro w t h - o r i e n t e d than Nova S c o t i a ' s . SUMMARY I f indeed i t i s not premature to suggest t h e r e i s a 'geography o f f i n a n c e ' , then i t s u r e l y must be ack-nowledged t h a t u n d e r l y i n g t h e o r y i s o n l y r o u g h l y hewn. Reviewing the l i t e r a t u r e was d i f f i c u l t because most r e f e r e n c e s to the t h e s i s problem were b r i e f and t r i v i a l . Code's work was more s u b s t a n t i v e but even he touched upon the t h e s i s problem o n l y i n p a s s i n g . The p r e s e n t author ' d i s a g r e e d w i t h p o r t i o n s of h i s arguments and attempted to c l a r i f y the p o i n t s o f c o n t e n t i o n . In Chapter Two, new r e l a t i o n s h i p s were i n t e r -meshed w i t h the core hypotheses on r e g i o n a l growth developed i n Chapter One, to p r o v i d e a more comprehensive p e r s p e c t i v e on f o r e s t i n d u s t r y f i n a n c e . Chapter One s e t out the d e s c r i p t i o n o f 'what' the t h e s i s problem was. Chapter Two can be viewed as an attempt to p r o v i d e a p r i o r i answers to the q u e s t i o n o f 'how' s p a t i a l v a r i a t i o n s i n a v a i l a b i l i t y o f l o a n c a p i t a l a r i s e . Chapter Three i n d i c a t e s the methods of da t a c o l l e c t i o n to e v a l u a t e a l l o f these q u e s t i o n s . 33 REFERENCES 1 Ginsburg, Essays on Geography and Economic  Development, op. " c i t . , p . i x . ; a l s o D. E . Keeble, "Models o f Economic Development," i n Models i n Geography.„eds. R. J . C h o r l e y & P. H. Haggett (London: Methuen, 1967), pp. 243-45. p "Though one always wishes f o r more e x p l o r a t i o n s of the i n t e r r e l a t i o n s h i p s between the h i s t o r y o f c a p i t a l markets and f i n a n c i a l i n t e r m e d i a r i e s on the one hand and the p r o c e s s o f economic development on the o t h e r , the o v e r a l l worth and q u a l i t y of. r e c e n t work on t h i s (money and banking) a s p e c t o f Canadian h i s t o r y has been i m p r e s s i v e . " : G. P o r t e r , "Recent Trends i n Canadian Business and Economic H i s t o r y , " E n t e r p r i s e and N a t i o n a l Development, eds. G. P o r t e r & R. D. C u f f (Toronto: Hakkert, 1973), p. H. Donald K e r r , "Some Aspects o f the Geography o f F i n a n c e i n Canada," Readings i n Canadian Geography, ed. Robert M. I r v i n g ( T o r o n t o : H o l t , Rinehart' and Winston, , 1968), pp. 187-201. 4 I b i d . , p. 199. W i l l i a m R. Code, "The S p a t i a l Dynamics o f F i n a n c i a l I n t e r m e d i a r i e s : An I n t e r p r e t a t i o n o f the D i s t r i b u t i o n o f F i n a n c i a l D e c i s i o n - M a k i n g i n Canada" ( u n p u b l i s h e d D o c t o r a l d i s s e r t a t i o n , U n i v e r s i t y o f C a l i f o r n i a , B e r k e l e y , 1971) 6 I b i d . , p. 2. 7 I b i d . , p. 10. See J . A. G a l b r a i t h , Canadian Banking (T o r o n t o : Ryerson, 1970), p. 192. 9James Muir, The Canadian Banking System (Royal Bank o f Canada, 1956?), p. 15. 1^Binhammer, Money. Banking and the Canadian  F i n a n c i a l System, op. c i t . , p. 147; N e u f e l d , The F i n a n c i a l  System o f Canada, op. c i t . , p. 133. F o r an i n d i c a t i o n o f the g r e a t e r p r o p o r t i o n o f i n t e r - w a r p e r i o d , see: J . H o l l a d a y , The Canadian Banking System (Boston: Bankers P u b l i s h i n g Co., 1938), p. 135. 11 Code, op. c i t . , p. 31i8. G a l b r a i t h , Canadian Banking (T o r o n t o : Ryerson, 1970), p. 195. 34 13 E . M. Hoover, L o c a t i o n Theory and the Shoe arid- L e a t h e r I n d u s t r i e s (Cambridge: Harvard U n i v e r s i t y P r e s s , 1937), r e p r i n t e d 1968 Johnson R e p r i n t C o r p . New York. U I b i d . , p. 200-1. 1 5 G a l b r a i t h , op. c i t . , p. 189. 16 A l l a n R. Pred, "The Growth and Development o f Systems o f C i t i e s i n Advanced Economies", i n Lund S t u d i e s  i n Geography. S e r i e s B (Human Geography, No. 38., (1973), p. 10. 17 The f a c t o r i s mentioned o b l i q u e l y i n most d e s c r i p t i v e s t u d i e s of Canadian banking, but i t s r e l a t i v e importance was not apparent u n t i l a f t e r the author had conducted s e v e r a l p r e l i m i n a r y i n t e r v i e w s o f persons who had had e x t e n s i v e f i r s t - h a n d e x p e r i e n c e i n Canadian f i n a n c i a l i n t e r m e d i a r i e s . The f i r s t was a wide- r a n g i n g i n t e r v i e w o f a r e t i r e d branch bank manager, and the second i n t e r v i e w was w i t h a s e n i o r o f f i c e r a t the B r i t i s h Columbia r e g i o n a l headquarters of the I n d u s t r i a l Development Bank. 18 D. A. MacGibbon, "Report of the Commission on Banking and C r e d i t With Respect t o the I n d u s t r y o f A g r i -c u l t u r e i n the P r o v i n c e o f A l b e r t a , " ( u n p u b l i s h e d r e p o r t , Edmonton, 1922), p. 30. 1 9 I b i d . , p. 31. 20 Comments based on a p e r s o n a l i n t e r v i e w w i t h a s e n i o r o f f i c e r of the I n d u s t r i a l Development Bank's r e g i o n a l o f f i c e i n Vancouver, March, 1973. 21 Comments based on a p e r s o n a l i n t e r v i e w . Vancouver, 1973. pp John T. Sears, I n s t i t u t i o n a l F i n a n c i n g o f Small Business i n Nova S c o t i a ( T o r o n t o : U n i v e r s i t y o f Toronto P r e s s , 1972), p. 219. 23 From the v i e w p o i n t o f a banker, G a l b r a i t h w-rote: "Before the 1967 Bank A c t , much of t h i s c o m p e t i t i o n among the banks emphasized the q u a l i t y and v a r i e t y o f s e r v i c e , w i t h the c o m p e t i t i o n b e i n g l a r g e l y i n the form o f o f f e r i n g b e t t e r or more s e r v i c e s r a t h e r than i n terms o f i n t e r e s t p a i d or charged. The reason i s t h a t u n t i l the 1967 Bank A c t the banks were s e v e r e l y r e s t r i c t e d , by the o l d 6 per cent c e i l i n g on bank l o a n r a t e s , i n the r a t e s they c o u l d /charge f o r l o a n s and, hence, i n the r a t e s they c o u l d pay on d e p o s i t s . Now a l l t h a t has been changed." G a l b r a i t h , op. c i t . , p. 47. 35 Chapter 3 METHODS OF DATA COLLECTION INTRODUCTION The t e c h n i q u e s o f d a t a c o l l e c t i o n are d e s c r i b e d below. The r a t h e r extended treatment may be o f v a l u e to anyone c o n s i d e r i n g s i m i l a r work, but was i n t e n d e d more to h e l p the r e a d e r understand how cir c u m s t a n c e s i n f l u e n c e d t h e , r e s e a r c h . The t h e s i s problem, as d e s c r i b e d i n Chapters 1 and 2, r e q u i r e d t h a t data on f i n a n c i n g e x p e r i e n c e s be c o l l e c t e d from a wi d e l y d i s t r i b u t e d sample o f s m a l l and medium f o r e s t companies. I t was important t h a t remote f i r m s be i n c l u d e d and t h a t the sample be l a r g e enough to permit s t a t i s t i c a l e v a l u a t i o n . C o n s i d e r i n g the sample requirements, i t was i n i t i a l l y f e l t t h a t d i r e c t m a i l q u e s t i o n n a i r e s would be a p p r o p r i a t e f o r c o l l e c t i n g the d a t a . T h e r e f o r e , some time was spent d e v e l o p i n g a s e l f - a d m i n i s t e r e d q u e s t i o n n a i r e form.'' when completed, the q u e s t i o n n a i r e was e v a l u a t e d by a number of people who had had e x p e r i e n c e e i t h e r w i t h survey t e c h n i q u e s or f o r e s t i n d u s t r y company p r i n c i p a l s , o r b o t h . As a r e s u l t o f t h e i r e v a l u a t i o n s , the m a i l survey approach was abandoned. The reasons were t h a t the q u e s t i o n n a i r e was too l o n g and complex and i n c l u d e d q u e s t i o n s too s e n s i t i v e to be c a s u a l l y answered through 36 the m a i l . A telephone survey was b r i e f l y c o n s i d e r e d as an 2 a l t e r n a t i v e but was r e j e c t e d as w e l l . I t was u l t i m a t e l y d e c i d e d t h a t data c o l l e c t i o n would be by p e r s o n a l i n t e r -views, and the q u e s t i o n n a i r e a l r e a d y c o n s t r u c t e d would be u s e f u l to s t a n d a r d i z e r e s p o n s e s . THE INTERVIEW SURVEY Once the d e c i s i o n was made to conduct an i n t e r v i e w survey, o t h e r c o n s t r a i n t s , became important. Student a c t i v i t i e s i n i t i a l l y r e s t r i c t e d t r i p s t o one day's d u r a t i o n , but time was l a t e r a v a i l a b l e f o r extended f i e l d t r i p s . The major c o n s t r a i n t was the problem o f l i m i t e d funds to cover the c o s t o f t r a v e l l i n g . Por the f i r s t s e c t i o n o f the survey, i n t e r v i e w s were r e s t r i c t e d to f i r m s l o c a t e d w i t h i n a few hours' d r i v e o f Vancouver. Samples were drawn from a l i s t i n g o f s m a l l and medium f o r e s t i n d u s t r y f i r m s whose o f f i c e s were l o c a t e d i n the lower mainland or' F r a s e r v a l l e y d i s t r i c t s . The haphazard r a t h e r than random s e l e c t i o n p r o c e s s i s a t h e o r e t i c a l drawback and c a u t i o n must be used i n drawing i n f e r e n c e s from the d a t a . The f i r s t group of i n t e r v i e w s y i e l d e d twelve completed c a s e s . There were s e v e r a l r e f u s a l s to cooperate and s i x f i r m s were r e j e c t e d aa samples f o r such reasons as n o t b e i n g engaged i n p r o d u c t i o n or b e i n g a f f i l i a t e d w i t h l a r g e r c o r p o r a t i o n s . The p r i n c i p a l s o f f o u r o t h e r f i r m s ( a p p a r e n t l y s u i t a b l e samples) were e l u s i v e , and a 37 m u t u a l l y s a t i s f a c t o r y appointment could n o t "be arranged even a f t e r f o u r or f i v e r e t u r n c a l l s . In one i n s t a n c e , the e x e c u t i v e was i n t e r v i e w e d hut the q u e s t i o n n a i r e not 3 completed. A s e r i e s o f f i e l d t r i p s was undertaken to conduct i n t e r v i e w s w i t h a more w i d e l y d i s t r i b u t e d sample. There were f o u r t r i p s : to the n o r t h - c e n t r a l i n t e r i o r ( c e n t e r e d on P r i n c e George), s o u t h Vancouver I s l a n d , n o r t h Vancouver I s l a n d , and a l o n g e r t r i p through the e a s t and west Kootenays as w e l l as the Okanagan r e g i o n . The t r i p s v a r i e d i n d u r a t i o n from t h r e e to ten days and r e s u l t e d i n an a d d i t i o n a l t h i r t y - s e v e n completed i n t e r v i e w s . The s p a t i a l d i s t r i b u t i o n o f the samples was somewhat u n s a t i s f a c t o r y , as a g r e a t e r number o f more i n a c c e s s i b l e f i r m s would have been d e s i r a b l e . The weather was p a r t i a l l y a f a c t o r , s i n c e extremely heavy snow f a l l s made off-highway t r a v e l d i f f i c u l t . The survey r e q u i r e d a h i g h degree o f m o b i l i t y . An appointment o f t e n c o u l d not be secured except f o r a time s e v e r a l days i n the f u t u r e , and i t was n e c e s s a r y to r e t r a c e the r o u t e a t t h a t time to conduct the i n t e r v i e w . There was a l i m i t to the amount o f e f f i c i e n c y which c o u l d be imposed i n s c h e d u l i n g i n t e r v i e w s . Q u i t e o f t e n unexpected c i r c u m s t a n c e s f o r c e d a p r o s p e c t i v e s u b j e c t to postpone an appointment at the l a s t minute, and the author spent numerous ;hours w a i t i n g i n o u t e r o f f i c e s . 4 The s i z e d i s t r i b u t i o n o f f i r m s i n the sample was a l s o u n s a t i s f a c t o r y , s i n c e s m a l l e r f i r m s are not r e p r e s e n t e d 38 i n r e l a t i v e p r o p o r t i o n t o t h e i r numbers i n the i n d u s t r y . The master l i s t i n g s o f f i r m s i n c l u d e d t r u c k - l o g g i n g con-t r a c t o r s , whose c a p i t a l a s s e t s are g e n e r a l l y f a r l e s s than o t h e r p r o d u c t i o n f i r m s ( s a w m i l l s , p l a n e r m i l l s , plywood m i l l s , e t c . ) . I t e a r l y became apparent t h a t s p e c i a l e f f o r t would be r e q u i r e d to i n c l u d e t r u c k - l o g g e r s . The owners o f t e n p e r s o n a l l y operated equipment o r super-v i s e d o n - s i t e l o g g i n g o p e r a t i o n s arid were co m p l e t e l y i n a c c e s s i b l e d u r i n g working hours. T h i s s e c t o r i s s u e d the l a r g e s t number of o u t r i g h t r e f u s a l s t o c o o p e r a t e . I t was n o t i c e d t h a t i f the company d i d not m a i n t a i n a permanent o f f i c e ( t h a t i s , detached from l i v i n g q u a r t e r s ) , then i t was more d i f f i c u l t to secure an i n t e r v i e w . Loggers o f t e n use t h e i r c h a r t e r e d accountant's o f f i c e to m a i n t a i n the channels o f m a i l and f i n a n c i a l r e c o r d - k e e p i n g , however, few accountants were w i l l i n g t o d i s c u s s t h e i r c l i e n t s ' o p e r a t i o n s ( u n l e s s they were p a r t - o w n e r s ) . Attempts t o i n t e r v i e w s m a l l c o n t r a c t o r s i n the evenings or on weekends u s u a l l y ended w i t h a r e b u f f a l t h a t p r e -cluded f u r t h e r c o n t a c t . Other s u b j e c t s i n t e r v i e w e d were asked t o d e s c r i b e the f i n a n c i a l r e l a t i o n s o f l o g g i n g c o n t r a c t o r s . While . 7 the responses were o f u n c e r t a i n v a l i d i t y , ' a t e n t a t i v e p i c t u r e o f t y p i c a l t r u c k - l o g g e r f i n a n c i n g was o b t a i n e d . The f i n d i n g s are r e p o r t e d i n Chapter Pour. Next, the procedures f o l l o w e d d u r i n g the completed i n t e r v i e w s are e x p l a i n e d . THE INTERVIEW PROCEDURE 39 The author e x p l a i n e d the survey purpose a t the o u t s e t o f each i n t e r v i e w . The i n t r o d u c t o r y comments v a r i e d l i t t l e from one i n t e r v i e w t o the next, w i t h any v a r i a t i o n caused "by q u e s t i o n s from the respondent. A b r i e f d i s c u s s i o n would u s u a l l y f o l l o w to answer a l l c u r i o u s i t y i n v o l v i n g the purpose o f the i n t e r v i e w . The respondents were giv e n a copy o f the q u e s t i o n n a i r e , and i t s f u n c t i o n i n c o l l e c t i n g responses t o sta n d a r d q u e s t i o n s was e x p l a i n e d . I t was r e q u e s t e d that the q u e s t i o n n a i r e s be answered i n the a uthor's presence, to ensure a l l were promptly completed. The respondent was i n v i t e d to p o i n t out a m b i g u i t i e s or to q u e s t i o n the purpose behind any q u e s t i o n . The q u e s t i o n n a i r e s were s e l f - a d m i n i s t e r e d . In n e a r l y a l l i n t e r v i e w s , the respondent would supplement w r i t t e n answers to some q u e s t i o n s w i t h v e r b a l comments. A f t e r completing the q u e s t i o n n a i r e , many respondents were w i l l i n g t o engage i n an u n s t r u c t u r e d d i s c u s s i o n , u s u a l l y i n i t i a t e d by the author a s k i n g q u e s t i o n s not i n the q u e s t i o n n a i r e . In cases o f c l o s e l y scheduled i n t e r v i e w s , or where the respondent i n d i c a t e d he c o u l d not spare f u r t h e r time, the i n t e r v i e w was c l o s e d . U s u a l l y however, the respondent r e l a x e d and r e l a t e d i n t e r e s t i n g anecdotes and o p i n i o n s r e g a r d i n g the f o r e s t i n d u s t r y and f i n a n c e . At the c l o s e o f each i n t e r v i e w , the respondent was promised a summary o f t h e survey r e s u l t s . The i n t e r v i e w s 40 ranged i n d u r a t i o n from about twenty minutes to one l a s t i n g almost f o u r hours, w i t h the average p r o b a b l y b e i n g about t h r e e - q u a r t e r s o f an hour. Immediately f o l l o w i n g each i n t e r v i e w , a p r i v a t e w r i t t e n r e p o r t was made. These r e p o r t s (which c o n c e a l e d the i d e n t i t y o f respondents) i n c l u d e d s i g n i f i c a n t comments made by the respondent as w e l l as the circum-stances which prompted these comments. The q u e s t i o n n a i r e was a l s o checked and omi s s i o n s or c o n t r a d i c t i o n s were f i l l e d i n c o r r e c t l y where p o s s i b l e on the b a s i s o f v e r b a l comments d u r i n g the i n t e r v i e w . The d e c i s i o n to not t a p e - r e c o r d o r otherwise d i r e c t l y r e c o r d r e s p o n d e n t s 1 statements was made b e f o r e the survey began. Some pr e v i o u s e x p e r i e n c e i n i n t e r v i e w i n g had shown t h a t when comments were d i r e c t l y r e c o r d e d , people tend to make o n l y Q n e u t r a l and s u p e r f i c i a l s tatements. While the method o f r e c o r d i n g the i n t e r v i e w s i n t r o d u c e d the p o s s i b i l i t y o f b i a s , i t d i d have apparent success i n p r o d u c i n g candid r e s p o n s e s . The i n t e r v i e w r e p o r t s p r o v i d e d an a d d i t i o n a l documental source from which a p p r a i s a l o f the survey hypotheses c o u l d be made. CONCEPTUAL BREAKDOWN OP THE QUESTIONNAIRE T h i s s e c t i o n e x p l a i n s each q u e s t i o n o f the q u e s t i o n n a i r e form. The purpose i s to show how the hypotheses were i n c o r p o r a t e d i n t o q u e s t i o n s . I t was a l s o d e s i r a b l e to i l l u s t r a t e how the o p t i o n a l c a t e g o r i e s o f answers to each q u e s t i o n were meaningful d i v i s i o n s . 41 C e r t a i n q u e s t i o n s d i d not i n v o l v e hypotheses i n themselves, but ensured t h a t a respondent answering the next h y p o t h e s i s - t e s t i n g q u e s t i o n a c t u a l l y had had p e r s o n a l e x p e r i e n c e i n the p a r t i c u l a r matter. Where the respondent l a c k e d e x p e r i e n c e , the q u a l i f y i n g q u e s t i o n d i r e c t e d him around the q u e s t i o n s he was n o t q u a l i f i e d t o answer. I f he d i d have ex p e r i e n c e , he was reminded o f i t f o r h i s next answer. Because o f u n p r e d i c t a b l e v a r i a t i o n i n r e s p o n d e n t s ' e x p e r i e n c e s , i t was not d e s i r a b l e to use an i n f l e x i b l e format where each respondent answered every q u e s t i o n . T h e r e f o r e , a l t h o u g h i t added g r e a t l y t o the complexity, the d e s i g n was n e c e s s a r y t o prevent s p u r i o u s answers. The q u e s t i o n bypass i n s t r u c t i o n s and o t h e r d e t a i l s are shown i n the copy o f the q u e s t i o n n a i r e found i n the Appendix. 1. G e n e r a l type of b u s i n e s s o r g a n i z a t i o n ? The presumption was t h a t the wider the d i s t r i b u t i o n o f ownership, the l e s s should be the dependence on f i n a n c i a l i n t e r m e d i a r i e s i n a c h i e v i n g growth, s i n c e i n c r e a s e d e q u i t y c a p i t a l can r e p l a c e e x t e r n a l borrowing. a. "sole p r o p r i e t o r s h i p The lowest s c a l e o f a b i l i t y to r a i s e e q u i t y c a p i t a l , hence the most dependence on f i n a n c i a l i n t e r m e d i a r i e s . b. p a r t n e r s h i p A degree o f expansion of e q u i t y c a p i t a l has taken p l a c e , but the a d d i t i o n o f f u r t h e r 42 e q u i t y c a p i t a l i s pro b a b l y more d i f f i c u l t . c. c o r p o r a t i o n (1) l e s s than ten s h a r e h o l d e r s w h i l e the company has been i n c o r p o r a t e d f o r tax or l e g a l c o n s i d e r -a t i o n s , i t does n o t have apparent wide ap p e a l t o o u t s i d e e q u i t y i n v e s t o r s , or e l s e shares have not been o f f e r e d f o r p u b l i c s a l e . The company may have f u r t h e r c a p a c i t y f o r f i n a n c i n g growth through e q u i t y investment than f i r m s c h a r a c t e r i z e d by the two p r e c e d i n g o p t i o n s . (2) more than ten s h a r e h o l d e r s The company has been i n c o r p o r a t e d and pro b a b l y a l r e a d y has had some expansion i n the base of e q u i t y c a p i t a l , and acce s s t o f u r t h e r e q u i t y c a p i t a l f o r purposes o f expansion s h o u l d be good. T h i s response i s judged h i g h e s t on the i m p l i e d s c a l e o f r e l a t i v e indep-endence from f i n a n c i a l i n t e r m e d i a r i e s . 2. A f f i l i a t i o n s o f the f i r m w i t h o t h e r companies? The q u e s t i o n i s based on the h y p o t h e s i s t h a t a s u b s i d i a r y can borrow expansion funds from parent c o r p o r a t i o n s , an a l t e r -n a t i v e not a v a i l a b l e to independent f i r m s who may o t h e r -wise be o f s i m i l a r s i z e and c i r c u m s t a n c e s . a. independent No o p t i o n t o borrow from parent companies. b. f i r m owns one or more s u b s i d i a r y companies S i n c e 43 the f i r m may be c a l l e d upon to l e n d to s u b s i d i a r i e s to f i n a n c e t h e i r expansion, i t s a c c e s s to i n t e r m e d i a r i e s and e q u i t y i n v e s t o r s should be e x c e l l e n t . c. s u b s i d i a r y o f another company The f i r m may be a b l e to supplement e x t e r n a l borrowing, w i t h funds borrowed i n t e r n a l l y through .parent c o r p o r a t i o n s ; o r i n a n o t h e r way, by borrowing from i n t e r m e d i a r i e s when the parent c o r p o r a t i o n guarantees the l o a n . 3. S c a l e o f peak employment? T h i s q u e s t i o n c r u d e l y measures the s i z e o f the f i r m . The reason f o r measuring the s i z e was the p o s s i b i l i t y t h a t c e r t a i n hypotheses would be v a l i d o n l y f o r c e r t a i n s i z e groups. 4. Does the f i r m have more than one d i v i s i o n ? T h i s q u e s t i o n measures the d i s t r i b u t i o n o f the f i r m . Firms may operate from a s i n g l e l o c a t i o n or from a number o f d i s t r i b u t e d s i t e s . A f i r m o p e r a t i n g i n o n l y one l o c a t i o n c o u l d be handicapped i f access to f i n a n c i a l i n t e r m e d i a r i e s were poor at t h a t s i t e , w h i l e a w i d e l y - d i s t r i b u t e d f i r m would be more l i k e l y t o enjoy good ac c e s s a t a t l e a s t one s i t e . However, no c l e a r r e l a t i o n s h i p was expected because, gi v e n a w i d e l y d i s t r i b u t e d f i r m , a f i n a n c i a l i n t e r m e d i a r y may f i n d i t more d i f f i c u l t to o b t a i n i n f o r m a t i o n c o n c e r n i n g a l l d i v i s i o n s of the firm'. a. no 44 b. yes (1) where divisions are vertically integrated This response indicates that the firm had grown by adding divisions in the intermediate stages of production. (2) where divisions are horizontally integrated In this case growth had been towards broader spatial exploitation of the resource. 5. Is the head-office location shared by production  operations? The hypothesis is that i f the head-office (the work place of key executives, principals) is accessible to a range of financial intermediaries, financial relations will be better. The question will reveal those firms whose head offices are separated from field operations (necessarily resource oriented), and which have sought higher access instead with central urban services such as finance. 6. What is the residential location of the principals? This was to determine the extent of reliance on foreign ownership and to determine "whether some firms in remote locations are in fact supported by principals who maintain high personal access with larger urban centers, thus giving their firms greater access to financial institutions q than would otherwise be the case." 45 7. Distance from company headquarters to patronized bank? This measure was to evaluate the friction-of-distance hypothesis. 8. Are there other branches of any chartered bank located  appreciably closer to the firm? This question filters out respondents who had made their choice of bank for reasons other than spatial convenience. 9. What are the reasons for using the chosen branch, given  the alternative bank branches which are closer? Persons answering had already indicated a willingness to travel further than was necessary, and the reasons are required, to understand why. a. the branch patronized is quite convenient, con-sidering travel routes of executives This answer is not a denial of the importance of distance, since i t involves high accessibility not apparent without closer inspection. b. the banking relationship was established in the  past, and i t is not deemed worthwhile to sever this  relationship to gain a more convenient banking point This response indicates that the respondent was insen-sitive to the travel costs associated with his incon-venient choice of bank. The banking relationship may be continued out of habit, or for past reasons not recently evaluated. The respondent does not believe his banking relationships could be improved upon, and there is an inference that his 'character' has been satisfactorily 46 e s t a b l i s h e d a t the p r e s e n t bank. c the p a t r o n i z e d branch i s a l a r g e one, and the  branch manager i s a s e n i o r man w i t h r e l a t i v e l y more  a u t h o r i t y T h i s response i m p l i e s awareness o f the i n t e r n a l d e c i s i o n - m a k i n g s t r u c t u r e o f banks, and a b e l i e f t h a t a s e n i o r branch manager can b e t t e r handle the b u s i n e s s than a j u n i o r branch manager. d. the manager of the p a t r o n i z e d bank i s an a c t i v e  and capable man to d e a l w i t h , compared to o t h e r branch  managers i n the a r e a or t h a t one has known T h i s response i n d i c a t e s a f a v o r a b l e r e a c t i o n towards the p e r s o n a l i t y and a b i l i t y o f the p r e s e n t manager, and suggests c o n t r a s t i n g p a s t e x p e r i e n c e s w i t h a t l e a s t one manager who l a c k e d those q u a l i t i e s . e. a s t a n d i n g p o l i c y o f the f i r m i s t o d e a l w i t h a  p a r t i c u l a r c h a r t e r e d bank and the ibranch c u r r e n t l y  p a t r o n i z e d i s the c l o s e s t branch o f t h e i r o r g a n i z a t i o n T h i s response i n d i c a t e s the a t t i t u d e t h a t banking r e l a t i o n s , once e s t a b l i s h e d , should endure f o r a l i f e t i m e a t the same bank. 10. Has the f i r m ever approached a second bank w i t h the  same l o a n p r o p o s a l a f t e r r e c e i v i n g an u n s a t i s f a c t o r y l o a n  o f f e r from the f i r m ' s u s u a l bank? A f i l t e r q u e s t i o n f o r the one f o l l o w i n g . 47 11. Where i t was p o s s i b l e to c o n s i d e r l o a n o f f e r s from  two bank o r g a n i z a t i o n s for* the same l e n d i n g s i t u a t i o n . were th e r e s i g n i f i c a n t d i f f e r e n c e s i n t h e i r o f f e r s ^  c o n s i d e r i n g such a s p e c t s as term, maximum p r i n c i p a l . r e q u i r e d s e c u r i t y , i n t e r e s t charges o r other f a c t o r s ? T h i s q u e s t i o n was designed to measure the degree o f c o m p e t i t i o n between d i f f e r e n t c h a r t e r e d banking companies. 1 2 « Are you one o f the persons who are q u a l i f i e d to r e p r e s e n t your f i r m i n n e g o t i a t i o n s f o r b u s i n e s s l o a n s  from banks or other f i n a n c i a l i n s t i t u t i o n s ? T h i s q u e s t i o n had a d u a l purpose. F i r s t l y , i t p r o v i d e d a check t h a t the respondent answering the q u e s t i o n n a i r e was o f s u f f i c i e n t s t a n d i n g i n the f i r m to p r o v i d e v a l i d answers without drawing upon guesses o r hearsay. The q u e s t i o n was p l a c e d i n i t s immediate co n t e x t by i t s second purpose, to f i l t e r out respondents not q u a l i f i e d t o answer the second f o l l o w i n g q u e s t i o n . 13. Have you r e p r e s e n t e d the f i r m i n b u s i n e s s l o a n  n e g o t i a t i o n s w i t h d i f f e r e n t branch managers o f the same  banking o r g a n i z a t i o n ? T h i s was a f i l t e r q u e s t i o n f o r the one f o l l o w i n g . 14. In your o p i n i o n , were t h e r e n o t i c a b l e d i f f e r e n c e s i n  the way these managers viewed l e n d i n g s i t u a t i o n s , such t h a t  one man would grant the l o a n under a c e r t a i n s e t o f con-d i t i o n s t h a t would not have been a c c e p t a b l e to another  manager? T h i s q u e s t i o n was i n t e n d e d to measure the -. 48 s i g n i f i c a n c e o f p o s s i b l e d i f f e r e n c e s between branch managers' c r e d i t - g r a n t i n g c r i t e r i a . a . yes, such d i f f e r e n c e s were n o t i c e d b. no. any d i f f e r e n c e s between managers' l e n d i n g  c r i t e r i a were not t h a t pronounced c. no o p i n i o n , cannot r e c a l l s i m i l a r l o a n s i t u a t i o n s  t h a t were put forward to d i f f e r e n t managers A l l a r e s e l f -e x p l a n a t o r y . d. no o p i n i o n , comparable loa n p r o p o s a l s were made  to d i f f e r e n t managers, but not a t times when the e x t e r n a l monetary c o n d i t i o n s (which a f f e c t t i g h t n e s s o f c r e d i t )  were s i m i l a r T h i s o p t i o n a l l o w s f o r the p o s s i b l e d i f f e r e n c e s which were due to q u i t e d i f f e r e n t e x t e r n a l monetary c o n d i t i o n s . The d i f f e r e n c e s could not be a t t r i b - . u t e d to v a r i a t i o n s i n the c r e d i t - g r a n t i n g c r i t e r i a o f managers s i n c e changes o f monetary p o l i c y c o u l d have caused these e f f e c t s . 15. S p e c i f y the r e g i o n a l c e n t e r which i s c l o s e s t to the  f i r m ' s headquarters T h i s q u e s t i o n shows the r e g i o n o f B r i t i s h Columbia i n which the f i r m m a i n t a i n s i t s e x e c u t i v e o f f i c e s . 16. What i s the highway mileage from company headquarters to the s e l e c t e d r e g i o n a l c e n t e r ? One purpose was t o i n d i c a t e the remoteness of the company, where remoteness 49 was measured i n terms o f d i s t a n c e to the n e a r e s t r e g i o n a l c e n t e r . A second purpose was t o g i v e the d i s t a n c e to the n e a r e s t r e g i o n a l c e n t e r . A second purpose was to g i v e the d i s t a n c e to the n e a r e s t I n d u s t r i a l Development Bank o f f i c e . 17. The respondent i s r e q u e s t e d to i n d i c a t e h i s g e n e r a l  knowledge of the f o l l o w i n g i n s t i t u t i o n s which grant  medium-term l o a n s , while the q u e s t i o n i s n o t meant to  r e q u i r e any r e s e a r c h , the respondent i s urged to i n c l u d e  knowledge t h a t he has h i m s e l f or knows to be possessed by  h i s e x e c u t i v e c o l l e a g u e s i n the f i r m . T h i s q u e s t i o n had two purposes; f i r s t l y to f i n d out how comprehensively the v a r i o u s types o f f i n a n c i a l i n t e r m e d i a r i e s a d v e r t i s e d f o r b u s i n e s s . S e v e r a l types o f i n s t i t u t i o n s were used t o e v a l u a t e t h i s concept: commercial f i n a n c e companies; Roynat L t d . , (an example o f a s p e c i a l i z e d t e r m - l e n d i n g i n s t i t u t i o n ) ; the I n d u s t r i a l Development Bank; and domestic c h a r t e r e d banks. The s t r e n g t h o f a d v e r t i s i n g was t o be checked by t h r e e c a t e g o r i e s which i n d i c a t e d a d i f f e r e n t source o f knowledge, and an i n c r e a s i n g l y g r e a t e r depth o f knowledge. The second purpose o f the q u e s t i o n was t o measure the a t t e n t i o n the respondent p a i d to the v a r i o u s i n s t i t u t i o n a l sources o f f i n a n c e . T h i s would be u s e f u l f o r e s t i m a t i n g the c o n t r i b u t i o n o f borrowers to f r i c t i o n -o f - d i s t a n c e , s i n c e a businessman s e e k i n g a medium-term loan would base h i s s e a r c h f o r f i n a n c e on h i s knowledge o f the c a p i t a l market. 50 18. D i d the f i r m f ormulate any pl a n s f o r expansion o f  f i x e d a s s e t s d u r i n g the past two years? The term "growth o f f i x e d a s s e t s " i s the p i v o t a l l i n k a g e o f the q u e s t i o n n a i r e w i t h the concept o f economic development. T h i s d e f i n i t i o n o f economic growth i g n o r e s o t h e r types o f growth such as i n c r e a s e s i n the number o f persons employed. Employment growth was i g n o r e d because employment f i g u r e s a re s u b j e c t to sh o r t - t e r m f l u c t u a t i o n s , and the maximum number i s more or l e s s r e l a t e d t o the c a p a c i t y of the p r o d u c t i o n equipment. In t h i s schema, long-term growth i n employment i s made p o s s i b l e by an expansion o f f i x e d a s s e t s . I t was f e l t t h a t the p l a n n i n g p e r c e p t i o n s o f the businessmen would be a p r a c t i c a l source o f evidence i n t e s t i n g f o r s p a t i a l v a r i a t i o n s i n growth. F o r example, i f a businessman had not form u l a t e d p l a n s f o r growth o f a s s e t s over the two year p e r i o d , then h i s bu s i n e s s would not p r o v i d e a sample f o r e v a l u a t i o n o f s p a t i a l d i f f e r e n c e s i n a v a i l a b i l i t y o f c r e d i t ( u n l e s s s p a t i a l b i a s t o such no-growth companies suggested t h a t the c o n s e r v a t i v e a t t i t u d e towards growth had been con-d i t i o n e d by poor r e c e p t i o n s o f p a s t expansion plans by f i n a n c i a l i n s t i t u t i o n s ) . In o t h e r cases, perhaps p l a n s were dropped e x p l i c i t l y because o f poor f i n a n c i n g p r o s p e c t s . 19. To what l e v e l were the expansion p l a n s o f the p r e v i o u s  two years a c t u a l l y c a r r i e d ? I f the p l a n s were c a r r i e d to the l e v e l o f p l a n n i n g f i n a n c i n g , then what had happened to these plans? I t was d e c i d e d t h a t the course o f events 51 f o r one plan o f each respondent was to be f o l l o w e d through to i t s e v e n t u a l d i s p o s a l . In each case, t h i s was to be the l a s t expansion p r o j e c t taken t o the stage o f p l a n n i n g f i n a n c e s . 20. What g e n e r a l source o f f i n a n c i n g had been o r i g i n a l l y  planned? T h i s was a f i l t e r q u e s t i o n to i d e n t i f y r e s p o n -dents who planned to employ i n t e r n a l funds to f i n a n c e the e xpansion. A l l respondents o f t h i s c a t e g o r y were d i r e c t e d p a s t f o l l o w i n g q u e s t i o n s d e a l i n g w i t h f i n a n c i a l i n s t i t u t i o n s . 21. D i d the f i r m ever approach a f i n a n c i a l i n s t i t u t i o n f o r  a loan i n o r d e r to c a r r y out the plan? T h i s was another f i l t e r q u e s t i o n to separate those f i r m s which had not attempted to borrow from a f i n a n c i a l i n s t i t u t i o n , but i n s t e a d sought to r a i s e c a p i t a l by s e l l i n g shares or bonds, o r otherwise had borrowed from n o n - i n s t i t u t i o n a l s o u r c e s . The q u e s t i o n was not combined w i t h the one p r e c e d i n g , to determine the p r e v a l e n c e o f each o f the a l t e r n a t i v e s to borrowing from i n t e r m e d i a r i e s . 2 2 . I n d i c a t e a l l f i n a n c i a l i n s t i t u t i o n s which, were  approached f o r a lo a n r e g a r d i n g the l a s t s e t of p l a n s  f o r which e x t e r n a l f i n a n c i n g was sought T h i s q u e s t i o n was g i v e n s e p a r a t e s t a t u s from the one f o l l o w i n g t o emphasize the need f o r a complete l i s t i n g o f a l l i n t e r m e d i a r i e s approached. I t was f e a r e d t h a t without t h i s emphasis, respondents would only mention those 52 i n s t i t u t i o n s w h i c h f a v o r a b l y r e c e i v e d t h e i r l o a n p r o p o s a l . 2 3 . I n e a c h c a s e , what was t h e o u t c o m e o f t h e a p p r o a c h t o  t h e i n s t i t u t i o n ? T h i s q u e s t i o n d e t e r m i n e s w h a t h a d h a p p e n e d t o t h e e x p a n s i o n p l a n s a f t e r t h e a p p r o a c h t o f i n a n c i a l i n s t i t u t i o n s f o r c r e d i t . T h e u l t i m a t e d i s p o s a l o f e a c h i n q u i r y was t r a c e d a s o n e o f t h r e e a l t e r n a t i v e a n s w e r s f o r e a c h i n s t i t u t i o n a p p r o a c h e d . a . a s a t i s f a c t o r y l o a n r e s u l t e d a n d t h e p l a n  p r o c e e d e d w i t h o u t m o d i f i c a t i o n b . t h e i n s t i t u t i o n d i d n o t w a n t t o make t h e l o a n U n l e s s a l t e r n a t i v e s o u r c e s o f f u n d s w e r e f o u n d l a t e r , t h e e x p a n s i o n p l a n was p l a c e d i n j e o p a r d y . c . t h e l o a n o f f e r o f t h e i n s t i t u t i o n was s o m e w h a t  u n s a t i s f a c t o r y I n t h i s c a s e , t h e r e s p o n d e n t e i t h e r may n o t h a v e b e e n o f f e r e d s u f f i c i e n t f u n d s t o c a r r y t h r o u g h h i s e n t i r e p r o j e c t , o r p e r h a p s t h e f u l l a m o u n t was a u t h o r i z e d b u t o t h e r l o a n c o n d i t i o n s b o t h e r e d h i m . A f o l l o w i n g q u e s t i o n h a d t o d e t e r m i n e w h e t h e r , t h e d i s s a t -i s f a c t i o n was r e l a t e d t o a n y i m p a c t f e l t on t h e g r o w t h o f t h e c o m p a n y . 2 4 . A s i n d i c a t e d b y t h e p r e c e d i n g q u e s t i o n , a n a p p r o a c h t o a n i n s t i t u t i o n r e s u l t e d i n a l o a n o f f e r t h a t was  u n s a t i s f a c t o r y t o y o u r f i r m . T h e r e a s o n s f o r t h e  d i s s a t i s f a c t i o n w e r e : a . t h e h i g h c o s t o f t h e l o a n A h i g h c o s t l o a n w o u l d 53 d i m i n i s h the expected r e t u r n on the p r o j e c t , hut growth would have s t i l l taken p l a c e . b. some s a c r i f i c e o f m a n a g e r i a l c o n t r o l would have  been i n v o l v e d T h i s o p t i o n might seem o f p e r s o n a l importance to the p r i n c i p a l s o f the company, but o t h e r than p o s s i b l y i n j e c t i n g a more c o n s e r v a t i v e a t t i t u d e towards l a t e r expansion p r o j e c t s , any r e s t r i c t i v e e f f e c t s on company growth would be d i f f i c u l t to p r e d i c t . c the f u l l amount re q u e s t e d would n o t be f o r t h c o m i n g T h i s o p t i o n i n d i c a t e s t h a t the l o a n o f f e r o f the i n s t i t u t i o n would have reduced the expansion p l a n s . d. l o a n c o l l a t e r a l or s e c u r i t y r e q u i r e d was somewhat  e x c e s s i v e T h i s o p t i o n i n d i c a t e s t h a t the l o a n was a c c e p t a b l e i n terms o f amount, but f u t u r e o p t i o n s would be a f f e c t e d . In case o f temporary f a i l u r e o f e a r n i n g s , the f i r m would undergo more s e r i o u s r i s k o f f a i l u r e , s i n c e the a s s e t s used as s e c u r i t y would be l o s t . As w e l l , l a t e r expansion p l a n s would be a f f e c t e d because a s s e t s which otherwise c o u l d be o f f e r e d f o r s e c u r i t y would '' a l r e a d y have l i e n s on them. 25. D i d your f i r m a c c e p t the loa n o f f e r , a l t h o u g h i t was not completely s a t i s f a c t o r y ? T h i s was a f i l t e r to i d e n t i f y respondents who c o n s i d e r e d the " u n s a t i s f a c t o r y " l o a n o f f e r but de c i d e d to not take i t . 54 26. What changes i n the p l a n o c c u r r e d , t h a t were s o l e l y  due t o the u n s a t i s f a c t o r y f i n a n c i n g arrangements? The purpose was to determine t h e e f f e c t s o f the f i n a n c i n g on the expansion p r o j e c t . The responses are s e l f -e x p l a n a t o r y , and probe the immediate e f f e c t s on growth o f the company. a. no m o d i f i c a t i o n s t o t h e o r i g i n a l c a p i t a l - a l l o c a t i o n  p l a n n i n g were n e c e s s a r y b. o r i g i n a l e x p e n d i t u r e p l a n s were s c a l e d down c. o r i g i n a l s c a l e of p l a n s was kept, but economies  were e f f e c t e d on the a c t u a l e x p e n d i t u r e s , by s u b s t i t u t i o n  o f cheaper u n i t s , e t c . d. the o f f e r e d amount was taken, and the pl a n s were  c a r r i e d out by combining the amount w i t h some e x t e r n a l  a l t e r n a t i v e to f i n a n c i n g d i r e c t l y through a f i n a n c i a l  i n s t i t u t i o n , e. the o r i g i n a l s c a l e o f p l a n s was ma i n t a i n e d by  t a k i n g the o f f e r e d amount and a p p l y i n g a squeeze on the  ot h e r i n t e r n a l c a p i t a l a l l o t m e n t s o f the f i r m 27. Given the d i f f i c u l t y i n o b t a i n i n g e x t e r n a l f i n a n c i n g ,  what course o f a c t i o n d i d the f i r m take r e g a r d i n g the  p l a n s which were b e i n g considered? T h i s q u e s t i o n was r e l a t e d to the i n t e r n a l c omplexity of the q u e s t i o n n a i r e , and ensured t h a t a l l respondents had i n d i c a t e d the u l t i m a t e f a t e o f t h e i r p l a n . 55 28. In t h i s f i n a l q u e s t i o n , a l l respondents a r e r e q u e s t e d  to check o f f any o f the f o l l o w i n g f e a t u r e s t h a t have "been  or are now c h a r a c t e r i s t i c of h i s f i r m . The i n f o r m a t i o n  i s n e c e s s a r y f o r an assessment o f the p r e v a l e n c e o f  a l t e r n a t i v e s to the e x t e r n a l f i n a n c i n g o f e x p e n d i t u r e  p l a n s d i r e c t l y through a f i n a n c i a l i n s t i t u t i o n . The i n t e n t i o n was to d i s c o v e r whether there were s i g n i f i c a n t s p a t i a l p a t t e r n s i n these a l t e r n a t i v e means o f e x p a n s i o n . a. the f i r m has s o l d shares or bonds to the g e n e r a l  p u b l i c , investment d e a l e r s or o t h e r s While t h e r e were to be no f i r m s i n the sample who had d i r e c t a c c e s s to the s t o c k or bond markets, i t was r e c o g n i z e d t h a t when medium-s i z e d companies f i r s t undertake these s t e p s , t h e i r r e l a t i v e success may be more l i m i t e d than t h a t o f l a r g e c o r p o r a t i o n s . Such medium-sized f i r m s would be s u i t a b l e samples f o r the p r e s e n t s u r v e y . b. the f i r m has c o n t r a c t e d to o t h e r f i r m s o r i n d i v - i d u a l s , a p o r t i o n o r a l l of the work o f s u p p l y i n g raw  m a t e r i a l s f o r p r o d u c t i o n The concept was t h a t by h a v i n g c o n t r a c t o r s do c e r t a i n p o r t i o n s o f work, the company would be a b l e to escape d i r e c t c o s t s a s s o c i a t e d w i t h p u r c h a s i n g and m a i n t a i n i n g the c a p i t a l equipment r e q u i r e d by the c o n t r a c t o r s to complete t h e i r j o b . A s u b - q u e s t i o n asked whether the raw m a t e r i a l s , w e r e a s s e t s o f the company or the c o n t r a c t o r , a matter o f importance s i n c e such a s s e t s may a c t as s e c u r i t y f o r short-term o p e r a t i n g l o a n s . c. c a p i t a l goods r e q u i r e d f o r p r o d u c t i o n , such as  b u i l d i n g s , machinery or equipment, have "been f i n a n c e d f o r  medium-term p e r i o d s through the vendor o f the c a p i t a l  goods, r a t h e r than by a f i n a n c i a l i n s t i t u t i o n In such cases the f i n a n c i n g i s arranged where the equipment i s purchased and the company i s r e l i e v e d o f the n e c e s s i t y f o r a c r e d i t s e a r c h . The r e t a i l e r has a s t a n d i n g arrangement f o r a f i n a n c i a l i n t e r m e d i a r y to p r o v i d e f i n a n c i n g . . A sub-question determined the frequency o f employing t h i s type of f i n a n c i n g . d. c a p i t a l goods r e q u i r e d f o r p r o d u c t i o n , such as  b u i l d i n g s , machinery or equipment are sometimes l e a s e d  or r e n t e d f o r medium o r long-term p e r i o d s L e a s i n g i s comparable t o medium term f i n a n c i n g s i n c e the c o s t o f l e a s e d a s s e t s can be d i s t r i b u t e d over the u s e f u l l i f e o f the a s s e t by means o f l e a s e payments. A sub-question determined the frequency o f t h i s a l t e r n a t i v e . e. the f i r m has i n the p a s t merged w i t h another f i r m t h a t p r e v i o u s l y operated s e p a r a t e l y i n the same  g e n e r a l i n d u s t r y S t r i c t l y speaking, growth may n o t have o c c u r r e d because o f mergers, but t h e r e i s a p o s s i b i l i t y o f r e a l growth because o f s c a l e economies. A l s o , the c o n s o l i d a t e d u n i t s h o u l d be more e c o n o m i c a l l y v i a b l e , thus a t l e a s t p r e s e r v i n g the status-quo s i t u a t i o n and p r e v e n t i n g d e c l i n e . The q u e s t i o n was not meant to i n c l u d e t a k e - o v e r s , which a r e s i m i l a r except t h a t the a s s e t s o f one company are purchased by the o t h e r , and a 57 f i n a n c i a l transaction occurs. SUMMARY The foregoing in d i c a t e s the r a t i o n a l e f o r the questionnaire, and the reader undoubtedly w i l l have been struck by i t s complexity. In f a c t , however, the question-naire does not completely account for financing experiences and i s a coarse measuring device. The process of data c o l l e c t i o n was very much a learning experience. At times, the author f e l t that the topic of f i n a n c i a l experience was simply too complex to be adequately treated i n any survey method. Therefore, a case study approach would have been more successful in e liminating many areas of uncertainty. On the other hand, i t i s questionable that the thesis problem would have been resolved s i g n i f i c a n t l y by a handful of cases, given i t s general nature. Many of the interviews did contribute the type of i n s i g h t which could be expected from the more d e t a i l e d case study approach. These contributions were recorded in the interview reports, and used extensively i n the evaluation, as reported i n the next chapter. In that respect, the author attempted to keep the best of both worlds. Given the thesis t o p i c and resources, there was no correct choice which would have resolved the methodology dilemma. Chapter Pour presents.the data from the f i e l d survey and evaluates the t h e s i s hypotheses in view of t h i s information. 58 REFERENCES 'An extensive literature has developed to assist the non-expert in constructing suitable questionnaires. For an introduction, see: T. L. Burton & G. E. Cherry, Social Research Techniques For Planners (London: George Allen & Unwin Ltd., 1970) pp." Also; T. Hillway, Introduction to Research ('Boston: Houghton Mifflin, 1956), p. 194. The basic problem with a telephone survey was that this medium of communication could not provide a uniformly satisfactory degree of privacy for the interviews, and privacy was an elemental requirement for obtaining responses. If calls were placed to any forestry operations reachable only by radio-phones, for example, there could be no assurance that virtually hundreds of other indiv-iduals with radio-receiver units would not be monitoring the telephone calls. Circumstances were inopportune. The interview took place in a hotel lounge at the 1975 Truck Loggers1 convention in Vancouver. 4In one notable instance, the executive twice postponed the interview at the last minute and was not eventually available for another twenty-four hours. The interview was especially interesting though, as the man had been in the midst of negotiations for a business loan. The listing was abstracted from forest industry directories. There were three directories involved: Madison's Canadian Lumber Directory (Vancouver: Madison's Canadian Lumber Reporter, Ltd., 1973 ed.); British Columbia Lumberman Grgenbook (Vancouver: Journal of Commerce Ltd., 1973 ed.); ABC - British Columbia  Lumber Trade Directory and "yearbook (Vancouver: Progress Publishing Co. (1958) Ltd., 1970 ed.). ^Exceptionally large contractors, of course, have assets with an apparent value of millions of dollars and would in fact be larger in terms of assets than many small and medium sawmill companies. 7 Uncertainty arises because the information is second-hand. However, i t probably has some validity because the persons divulging the information had had reasonable opportunity to have acquired knowledge of the financial affairs of small contractors. In most cases, the respondents were the ones who made out the paychecks for the contractors affiliated with their company. In this position they could gain considerable insight, as for example, some respondents mentioned having had 59 c r e d i t o f f i c e r s from one or another f i n a n c i a l i n t e r m e d i a r y c a l l f o r c r e d i t r e f e r e n c e s whenever a c o n t r a c t o r was about to arrange f i n a n c i n g f o r the purchase o f c a p i t a l equipment. p Sears made the p r a c t i c a l o b s e r v a t i o n t h a t r e a d i n g from a prepared l i s t o f q u e s t i o n s had seemed t o make h i s i n t e r v i e w s u b j e c t s v i s i b l y u n c o mfortable, so he had even d i s c o n t i n u e d t h a t p r a c t i c e . Sears, I n s t i t u t i o n a l  F i n a n c i n g o f Small B u s i n e s s i n Nova S c o t i a , op. c i t . , p. 9. ^Quoted from preamble to Question 6, Appendix. i 60 Chapter 4 PRESENTATION OF SURVEY RESULTS INTRODUCTION The r e s u l t s o f the i n t e r v i e w survey are d e s c r i b e d i n two s e c t i o n s . A q u a n t i t a t i v e a n a l y s i s o f the s t a n d a r d q u e s t i o n n a i r e d a t a i s f o l l o w e d by a p r e s e n t a t i o n o f q u a l i t a t i v e f i n d i n g s . The reason f o r the q u a n t i t a t i v e a n a l y s i s was t h a t the q u e s t i o n n a i r e had been c o n s t r u c t e d f o r the a p p l i c a t i o n o f s t a t i s t i c a l methods. However, problems w i t h t h e , s m a l l n e s s o f sample made t h i s f i r s t s e c t i o n o f the a n a l y s i s a n o n - r i g o r o u s a p p r a i s a l . A c o m p e l l i n g reason f o r the q u a l i t a t i v e assessment was t h a t most i n f o r m a t i o n c o l l e c t e d was n o n - s t a n d a r d i z e d , and i t s b a s i c form r e s i s t e d use i n r i g o r o u s a n a l y s i s . As suggested e a r l i e r , t h i s second type o f i n f o r m a t i o n was more c h a r a c t e r i s t i c o f a case-study approach than the survey method. U n q u e s t i o n a b l y , the q u a l i t a t i v e d a t a c o n t r i b u t e d most to the knowledge a c q u i r e d d u r i n g the survey. QUANTITATIVE ANALYSIS OF STANDARD QUESTIONNAIRES 1. B a s i c Components o f the A n a l y s i s F i f t y - t w o v a r i a b l e s were developed from the 28 1 q u e s t i o n s on the q u e s t i o n n a i r e . Most q u e s t i o n s were o f 61 the c l o s e d v a r i e t y , such t h a t the answer of any p a r t i c u l a r respondent would f a l l i n t o o n l y one c a t e g o r y of a m u l t i p l e -2 c h o i c e range o f p o s s i b l e answers. To s i m p l i f y the a n a l y s i s , v a r i a b l e s whose measurement c o u l d have been taken t o i n t e r v a l l e v e l were a l s o d i v i d e d i n t o d i s c r e t e c a t e g o r i e s , thus t r e a t i n g a l l o f the d a t a as i f only o f nominal l e v e l o f measurement. Every i n t e r v i e w i n which a q u e s t i o n n a i r e was c o m pletely f i l l e d out y i e l d e d one s e t o f measurements f o r each r e l e v a n t v a r i a b l e , and the unique Bet o f measurements i s termed a "case". There were 43 u s e a b l e q u e s t i o n n a i r e s , thus 43 c a s e s . The a n a l y t i c a l problem was to determine whether s e l e c t e d p a i r s of v a r i a b l e s were a s s o c i a t e d , and i f so, how s t r o n g l y . In t h i s s i t u a t i o n , two v a r i a b l e s are a s s o c i a t e d i f subgroups o f the one v a r i a b l e d i f f e r i n t h e i r p r o p o r t i o n i n v a r i o u s subgroups of the second v a r i a b l e . A t e s t o f the s i g n i f i c a n c e of such d i f f e r e n c e s was d e s i r a b l e . A l s o , s i n c e the v a r i a b l e s were o f nominal l e v e l ( such t h a t c a t e g o r i e s d i d not occur i n s y s t e m a t i c o r d e r ) , even the statement t h a t two v a r i a b l e s are s i g n i f i c a n t l y a s s o c i a t e d c o u l d not be i n t e r p r e t e d u n l e s s a d e s c r i p t i o n was g i v e n of how the c a t e g o r i e s o f each v a r i a b l e o c c u r r e d t o g e t h e r . ^ T h e r e f o r e , the expected a s s o c i a t i o n between subgroups had to be c o n c e p t u a l i z e d and compared to what was found i n the h y p o t h e s i s t e s t . While the s e l e c t i o n o f r e l e v a n t p a i r s o f v a r i a b l e s t o t e s t f o r a s s o c i a t i o n (and the h y p o t h e s i z e d a s s o c i a t i o n ) was based upon p r e v i o u s l y developed theo r y , the n u m e r i c a l c a l c u l a t i o n s were c a r r i e d out by computer. The degree o f a s s o c i a t i o n between any c r o s s t a b u l a t e d p a i r o f v a r i a b l e s was e s t a b l i s h e d by s e v e r a l n o nparametric s t a t i s t i c a l measures: c h i - s q u a r e , F i s h e r ' s e xact t e s t , Cramer's V, and p h i . Chi-square and F i s h e r ' s exact t e s t are s i m i l a r i n t h a t both t e s t the s t a t i s t i c a l independence o f c r o s s t a b u l a t e d v a r i a b l e s , but do not show the degree o f a s s o c i a t i o n . The Cramer's V and p h i measures were 6 i n c l u d e d f o r t h e l a t t e r purpose. The s t a t i s t i c a l measures are based on the c h i -square s t a t i s t i c , which i s a t w o - t a i l e d t e s t o f s i g n i f i e d ance. For t h i s reason, the d i r e c t i o n a l n ature o f a s s o c -i a t i o n s i s not r e v e a l e d by an examination o f o n l y the f i n a l t e s t s t a t i s t i c s . Hence, i t was n e c e s s a r y t o a l s o 7 d i s p l a y the contingency t a b l e ' produced by each c r o s s -t a b u l a t i o n so t h a t i n s p e c t i o n would show how the v a r i a b l e s were a s s o c i a t e d . I n s p e c t i o n was made e a s i e r by computing the row and column percentages f o r the frequency v a l u e o f each c e l l o f a t a b l e , thus a l l o w i n g comparisons o f percentage d i f f e r e n c e s between a l l columns of any row category, and s i m i l a r l y between a l l rows o f any column c a t e g o r y . Percentage d i f f e r e n c e s are a simple measure which conveys the concept o f a s s o c i a t i o n by emphasizing any d i f f e r e n c e s i n the c a t e g o r i e s o f one v a r i a b l e i n t h e i r p r o p o r t i o n o f v a r i o u s c a t e g o r i e s o f the second v a r i a b l e . The d i s a d v a n t a g e o f t h e percentage d i f f e r e n c e i s t h a t by i t s e l f , i t cannot t e s t the l e v e l o f s i g n i f i c a n c e o f observed d i f f e r e n c e s . 63 2. Logic of the Quantitative Analysis phase I t was desirable to evaluate the core hypotheses before seeking other associations which would suggest new hypotheses. To accomplish t h i s , the l i s t of v a r i a b l e s was f i r s t , divided into several groups. There were four primary independent variables (BANKDIST-A, BANKLIST-B, REGION, REMOTNES), each of which involved important hypotheses when crosstabulated with c e r t a i n dependent v a r i a b l e s . As well, there were s i x secondary independent variables (TYPORGN, CORPAPLN, EMPLOYMT, PRELDIVN, SITEHQ, RESIPRIN), and each of these variables measured s p e c i f i c c h a r a c t e r i s t i c s of the firm which could cause differences between cases with respect to financing experiences. There was a l a r g e r t h i r d group of v a r i a b l e s which could be described as f i n a n c i a l experiences, and these were the dependent v a r i a b l e s . The main hypotheses are tested when the primary v a r i a b l e s are crosstabulated with selected v a r i a b l e s from the f i n a n c i a l experiences. The secondary independent variables play an intermediate r o l e , and are brought into the analysis a f t e r a primary and a dependent v a r i a b l e have been tested. The question i s whether they intervene i n the association between the other crosstabulated v a r i a b l e s . I f any secondary v a r i a b l e i s not independent of the variables involved i n a t e s t , then the hypothesis becomes conditional upon the association of that secondary v a r i a b l e . 64 The secondary v a r i a b l e may "be s t r o n g l y a s s o c i a t e d w i t h the primary v a r i a b l e . In the p r e s e n t survey, t h i s q c o u l d be c a l l e d a 'sampling e r r o r *^ s i n c e the r e s t r i c t e d number of cases meant t h a t one could not t e s t the i n f l u e n c e of the secondary v a r i a b l e by h o l d i n g i t c o n s t a n t . In these cases, one could not d i s c e r n between the two Independent v a r i a b l e s i n any t e s t i n v o l v i n g a dependent v a r i a b l e . The o t h e r type of i n t e r v e n t i o n concerns s i t u a t i o n s where the secondary v a r i a b l e i s a s s o c i a t e d w i t h the dependent v a r i a b l e . Once a g a i n , the h y p o t h e s i s r e l a t i n g the two o t h e r v a r i a b l e s i s n o t b e i n g t e s t e d a c c o r d i n g to the i m p l i c i t assumption t h a t a l l o t h e r t h i n g s are e q u a l . T h i s l a t t e r type o f i n t e r f e r e n c e i s l e s s s e r i o u s i n t h a t o n l y the one r e l a t i o n s h i p w i t h a dependent v a r i a b l e i s p l a c e d i n doubt, whereas i n the s i t u a t i o n o u t l i n e d above, a l l r e l a t i o n s h i p s o f the primary v a r i a b l e w i t h dependent v a r i a b l e s are u n c e r t a i n . In e i t h e r case, more dat a would be r e q u i r e d to t e l l which f a c t o r a c t u a l l y was the s i g n i f i c a n t c a u s a l f o r c e o f the f i n a n c i a l e x p e r i e n c e . 3. I n t e r p r e t a t i o n o f S t a t i s t i c a l R e s u l t s o f C r o s s t a b -u l a t i o n s i Table 4.1 The r e s u l t s of t h e c r o s s t a b u l a t i o n s a r e summarized i n T a b l e 4.1 by means of the s t a t i s t i c s d e s c r i b e d e a r l i e r . To use the t a b l e , one must remember t h a t the h y p o t h e s i s b e i n g t e s t e d i s the h y p o t h e s i s o f "no d i f f e r e n c e s " , t h a t 65 is, no association between the affected variables. If this test hypothesis can be rejected with a high confid-ence level (customarily taken to be .05 or less), then the alternative hypothesis of association is accepted. In preliminary research of the present sort, there seems to be no reason why the .05 significance level should be insisted upon, since a significance level of .10 or even .15 may indicate weaker associations which deserve further study. In Table 4.1, the level of significance is given by the topmost of the two groups of figures entered in each cell of the table. The bottom figure indicates the strength of the association. The use of Table 4.1 is illustrated in the following example: (1) Hypothesis (alternate): The further a businessman from an IDB branch office, the less likelihood that past loan discussions would have been held with them. (2) Variables: independent (REMOTNES), dependent (Q17DHDB) . (3) Test result significance = .95. The test hypothesis of no association (of past loan discussions with accessibility) is accepted (see row 26, column 4 of Table 4.1). Note that i f association had been found, reference would have had to be made to the contingency table (not shown), to inspect the nature of the association. 66 (4) Check for intervening variables (a) Association between test independent variable and other independent variables (sample error): inspect column 4, rows 1-10 (Table 4.1). This shows four associations (REGION, EMPLOYMT, PRELDIVN, SITEHQ). (b) Association between test dependent variable and independent variables other than test variable: inspect row 26, which shows two intervening variables (TYPORGN, CORPAPLN). (c) Conclusion: the hypothesis (Q17DIIDB, REMOTNES) was not strictly tested, due to the unknown influence of intervening variables. 'Table 4.1 LEVEL OF SIGNIFICANCE OF TEST HYPOTHESES, AND STRENGTH OF ASSOCIATION, FOR CROSSTABULATIONS OF SURVEY VARIABLES PRIMARY INDEPENDENT VARIABLES BANKDIST.A BANKDIST-Questlon # BANKDI3T-. 7 REGION 15 REMOTNES 16 TYPORGN 1 CORPAFLN 2 EMPIOYMT 3 PRELDIVN 4 SITEHQ 5 RESIPRIN 6 09 ' 38 (1) 49 * 25 (1) 61 « .22 (1) ,78 * ,20 (1) 38 « 35 (1) 15 • 35 (1) ,52 • .22 (1) ,65 « .19 (1) 22 * 35 (1) ,47 « .20 (1) ,92 * .10 (1) ,45 * .25 (1) .58 * .31 (1) ,28 • .24 (1) .38 * .21 (1) .82 « .09 (1) ,09 * .38 (1) 22 • ,35 (1) .00 * .65 (1) .91 • .19 ( 1 ) ,38 * ,31 CD .26 * .36 (1) .56 « .26 (1) ,21 • .36 (1) ,05 • ,46 (1) ,49 » ,25 (1) ,47 * .20 (1) ,00 • ,65 (1) ,46 » ,20 (1) ,47 « .25 (1) ,02 « .48 (1) .04 « , 3 8 (1) ,03 • .39 (1) .44 * .19 (1) SECONDARY INDEPENDENT VARIABLES 45 * ,25 (1) ,02 « ,48 (1) .53 * .17 (1) 41 « 20 (1) 25 « ,25 (1) THE SPACB FOLLOHNG EACH NUMERICAL ENTRY IS CODED TO IDENTIFY THE TEST STATISTIC: 1) blank or * — Chi-square l i ) (1) — Cramer's V i l l ) (2) ~ Phi I T ) (3) — Fisher's Exact Test v) nt — r e l a t i o n not tested I — no test, a l l oases i n a l l categories of one variable ooour i n one category of other variable . more than 20 per cent of expected values were 5 or flower ,00 « ,55 (1) .33 * ,28 (1) ,44 • ,24 (1) ,01 » ,50 (1) ( 1 ) 0 (1) . 3 4 .14 ( D 0 ( 1 ) . 9 2 . 0 1 CD .92 . 0 1 ( 2 ) 0 ( 1 ) nt . 0 2 .53 CD .20 .34 CD ( 1 ) • 91 . 0 1 ( 2 ) .91 . 0 1 ( 2 ) .82 .03 ( 2 ) (1) .55 .09 ( 2 ) . 2 1 .18 ( 2 ) .83 .03 ( 2 ) ( 1 ) .13 .35 (3) C2> .05 .47 C3) ( 2 ) .65 .05 (3) ( 2 ) (1) .71 .05 ( 2 ) .71 .05 ( 2 ) .73 .05 ( 2 ) ( 1 ) .87 . 0 2 ( 2 ) .87 . 0 2 ( 2 ) .84 .03 ( 2 ) CD .34 . 3 2 CD .77 .18 • CD .08 .45 CD ( 1 ) .63 .07 ( 2 ) .63 .07 ( 2 ) .98 . 0 0 ( 2 ) ( D .69 .05 ( 2 ) . 2 1 .18 ( 2 ) .83 .03 ( 2 ) ( D .69 .05 ( 2 ) .67 .06 C2> .39 .12 ( 2 ) CD .72 .05 ( 2 ) .72 .05 (2) . 9 2 .01 ( 2 ) CD .50 .10 ( 2 ) .50 . 1 0 ( 2 ) .83 .03 ( 2 ) MTEGRTN 4 CLOSBANK 8 QUALCOMP 10 BANKCOMP 11 QUALSUBJ 12 EXPBSUBJ 13 MANAGERS 14 Q17L0CF0 17 Q17LITFC 17 Q17DISFC 17 Q17L0CRN 17 Q17LITRN 17 .50 « .31 CD .01 * .50 ( l ) .35 » .27 (1) ,17 * .41 CD .18 • .33 CD .12 CD .87 • .21 CD .78 » .15 CD .48 • .23 CD .48 • .23 CD .26 • .30 (1) .20 • .32 CD ,40 • ,26 CD .38 • .21 CD .02 • .40 (1) .20 (3) .28 (2) .53 » .17 (1) ,38 (1) ,11 * ,42 CD .95 * .04 CD .27 • .24 (1) .69 • .13 CD .38 • .21 CD .48 • .18 (1) ,48 * .37 CD .69 • .22 (1) .23 • .35 (1) .77 * .30 CD .24 * .35 CD .43 * .30 CD .48 » .34 (1) .79 • .19 CD .63 • .24 CD .61 « .24 (1) .21 * .36 (1) . 5 0 • .27 (1) .28 « .30 (1) .45 • .19 CD .07 • ,34 (1) .05 * .54 CD .43 • .19 (1) .72 • .12 CD .28 • .33 CD .76 * .11 CD .12 .31 CD .44 .19 CD . 2 3 .25 CD .51 .17 CD ,63 • ,21 CD ,08 » ,34 (1) ,74 * .11 CD ,45 * ,28 (1) .21 * .26 (1) .63 • .14 (1) ,75 • . 2 3 ( D .69 * .13 CD .32 • .22 (1) .32 * .22 CD .41 * .20 (1) .11 CD .07 * .46 (1) .81 * .14 (1) .45 • .24 CD ,05 « .54 (1) ,76 » .16 CD .89 * .12 (1) .62 " .27 (1) .30 • ,28 (1) .26 • .30 (1) .24 • .31 ( D .26 * .30 (1) .07 * .39 CD .19 .49 .35 .35 .17 .42 .50 .40 .42 .33 .79 .24 .73 .34 .03 .53 .03 .52 .16 .42 .28 .38 .16 Table 4.1 ( c o n t i n u e d ) 2 3 Q17DISRN 17 .11 .37 * (1) .00 .52 (1) . 3 2 .32 ft (1) .31 .23 * (1) .90 .06 (1) .01 .49 * (1) .57 .29 * ( 1 ) .86 .02 (2) .86 .02 (2) .90 . 0 1 ( 2 ) 24 Q17L0IDB 17 .10 .37 (1) .07 .35 (1) .12 .40 (1) .99 .01 (1) .25 .25 (1) .73 .17 * (1) .58 .29 ( 1 ) .44 .11 (2) .34 .14 (2) .68 . 0 6 (2) 25 0.17LIIDB 17 .41 .25 (1) .04 .38 * (1) .45 . 2 9 (1) .99 . 0 1 * (1) .25 . 2 5 * (1) .00 .53 * (1) .24 .39 (1) . 9 2 .01 (2) .92 .01 (2) .68 .06 (2) 26 H17DIIDB 17 .20 .32 # (1) .14 .30 (1) .12 .41 (1) .95 .04 (1) .05 .36 (1) .03 .44 (1) .11 . 4 5 ( 1 ) .90 .01 (2) .51 .10 ( 2 ) .97 .00 (2) 27 Q17L0C0B 17 I I I I I I I I I I 28 0.171ITCB 17 .70 .18 (1) .73 .11 (1) .17 .38 (1) .66 .13 ft (1) .88 .07 (1) .00 .69 * (1) .01 .56 * (1) .78 .04 (2) .78 .04 (2) .35 .14 (2) 29 Q.17DISCB 17 1 I I 1 I I I I I I 30 EXPNSION 18 .65 .19 (1) .38 .21 * ( 1 ) .35 .31 (1) .58 .15 (1) .38 .21 ( 1 ) .34 .27 (1) .02 .55 ft (1) .92 .01 (2) .92 .01 (2) .47 .10 (2) 31 TESTPLAN 19 .67 .21 (1) .70 .14 (1) .18 .42 (1) .37 .23 * (1) .85 .09 (1) .32 .31 (1) .28 .42 (1) .83 .03 (2) .73 .05 (2) .44 .12 (2) 32 GENSORCE 20 .80 .16 # (1) .92 . 0 6 (1) .78 .22 * (1) .74 . 1 3 (1) .57 .18 (1) .13 .40 (1) .15 .48 (1) .36 .15 (2) .57 .09 (2) .12 .26 (2) 33 APPROPIN 21 .92 .12 (1) .92 .06 ft ( 1 ) .55 .30 (1) .77 .12 (1) .35 .25 (1) .34 .31 (1) .32 .41 (1) .60 .08 (2) .73 . 0 6 (2) . 0 3 .37 (2) 34 OONTAOOB 22 .15 .40 * (1) .60 .17 (1) .27 .39 (1) .07 .40 (1) .66 . 1 6 (1) .53 .26 ( 1 ) .76 .28 (1) .49 .11 (2) .82 .03 (2) .02 .40 (2) 35 COHTAIDB 22 .27 .34 * (1) .50 .20 (1) .05 .54 (1) .60 .17 * (1) .37 .24 (1) .47 .28 * (1) .25 .45 ft (1) .38 .15 (2) .45 .13 ( 2 ) .26 .19 (2) 36 CONTACRN 22 .48 .27 ( 1 ) . 6 1 .17 (1) .04 .55 (1) .23 . 3 0 (1) .62 .17 * (1) .00 .60 * (1) .42 .39 ( 1 ) .81 .04 (2) .54 .10 (2) .95 .00 (2) 37 COHTACPC 2 2 .04 .50 (1) .02 .48 * (1) .09 .49 (1) .40 .23 * (1) .49 .21 * (1) .27 .34 (1) .70 .30 (1) .17 .23 (2) .93 .01 (2) .48 .12 (2) 38 CONTAOTH 22 .48 .27 (1) .90 .08 (1) .69 .26 * (1) .03 .46 * (1) .01 .52 (1) .46 .28 ft (1) .47 .37 ft (1) .14 . 2 5 (2) .49 .11 (2) .95 .00 (2) 39 Q23CHBNK 2 3 .81 .23 * (1) .66 .21 (1) . 2 3 .44 (1) .21 .32 * (1) .96 .10 * (1) .50 .31 ft (1) .88 .30 (1) .31 .29 (1) .28 .30 ft (1) .91 .08 (1) 40 Q23IDB 2 3 .11 .71 * (1) . 0 0 1.0 # (1) .02 .83 (1) .72 .33 * (1) .58 .37 * (1) .85 . 2 5 * (1) .59 .47 (1) .15 .61 ft (1) .43 .40 (1) I 41 Q23ROYNT 23 .19 1.0 (1) .22 1.0 ft (1) 1 1 I I .22 1.0 * (1) .22 1.0 ft (1) .22 1.0 ft (1) .22 1.0 ft (1) 42 Q23PINOO 2 3 .03 1.0 (1) . 2 3 .64 (1) .47 .50 * (1) . 0 6 .79 (1) .64 .35 (1) .64 .35 (1) .11 .72 ft (1) .64 .35 (1) .13 .75 (1) 1 43 Q230THER 23 .22 1 .0 (1) .33 1.0 (3) (2) .22 1.0 ( 1 ) .66 .50 (3) (2) . 3 3 (3) 1.0 (2) 3 .66 .50 ( 3 ) (2) I I . 6 6 .50 ( 3 ) (2) 44 REASUNS 24 .66 .31 (3) (2) 1 .49 . 6 3 (1) .30 .63 (1) .83 .20 ( 3 ) (2) .74 . 3 1 (1) .54 .44 ft (1) .22 . 6 3 ( 3 ) (2) .83 .20 ( 3 ) (2) I 45 ACCPTUNS 25 . 6 0 .40 (3) ( 2 ) 1 .17 1 . 0 ( 1 ) .65 .40 * (1) .20 1.0 (3) (2) .65 .40 # (1) .39 .61 (1) . 6 0 .40 ( 3 ) (2) .20 1.0 ( 3 ) (2) I 46 POSTPONE 27 I I I I I I I .75 . 3 3 ( 3 ) (2) I I 47 BONDSHAR 28 .93 .10 (1) I .51 .27 (1) . 1 9 .27 * (1) .00 .60 (1) .64 .19 (1) .58 .30 (1) .13 .30 ft (1) .74 .05 (2) .74 .05 (2) 48 CONTRMAT 28 .60 .24 (1) .03 .40 (1) .31 .33 (1) .04 .33 (1) .83 .16 ( 1 ) .83 .20 (1) .89 .26 (1) . 3 2 .28 ft (1) .23 .32 ft (1) .48 .24 « (1) 49 CONTEQUP 28 .67 .21 (1) .86 .12 <i> .81 .22 (1) .42 .21 (1) .81 .13 ( 1 ) .76 .19 (1) .86 .25 (1) .26 .25 (1) .13 .30 ft (1) .15 .29 (1) 50 VENDPIN 28 .20 .31 (1) .07 . 3 1 (1) .03 .44 (1) .64 .17 (1) .43 .21 (1) .35 .28 (1) .41 .34 (1) .72 .12 ( 1 ) .73 . 1 2 ( 1 ) . 4 7 .18 ft ( 1 ) 51 LEASED 28 .15 .33 ft (1) .83 .13 ( 1 ) . 7 6 .24 (1) .75 .15 ( 1 ) .50 .19 (1) .50 .25 * (1) .91 .23 ( 1 ) .28 .24 (1) . 2 5 .25 (1) .65 .14 ft (1) 52 MERGERS 28 . 6 8 .18 (1) .35 .22 ( 1 ) .51 .27 (1) .31 .23 ( 1 ) . 0 2 .42 (1) .22 . 3 2 (1) .18 .42 (1) .80 .03 (2) .76 .04 (2) .36 . 1 3 (2) 69 4. Summary of Problems in the Quantitative Analysis A check of whether minimum requirements of the chi-square test statistic had been violated showed that most of the tables should not be evaluated with the chi-square statistic, because of the rule that the expected cell frequency should not f a l l below 5 in more than 20 per cent of the cells. Most violations of the rule were gross (e.g.; 33 per;cent or more cells affected), and for this reason the alternative of Yate's correction was not applied. An alternative was to combine categories of the offending variables to reduce the number of cells with low expected frequencies. The number of variables which could have been collapsed without obscuring the meaning of remaining categories was limited (see Appendix A). Further, regarding those variables which could be collapsed slightly without a loss of meaning (EMFLOYMT, BANKDIST, REMOTNES), the effects on the level of general-ization made this partial solution of dubious value. A review of alternative tests of significance suitable for nominal data was unfruitful. The statistics applied appeared most suitable even though the problems associated with the smallness of the sample could not be overcome. The rigorous analysis could not proceed further, parts of this analysis were very useful in the qualitative appraisal of the survey results, reported in the next section. 70 QUALITATIVE SURVEY FINDINGS 1. I n t r o d u c t i o n The purpose of t h i s s e c t i o n i s to answer the c e n t r a l t h e s i s q u e s t i o n s : (a) Are businessmen handicapped by d i s t a n c e when they s e a r c h f o r f i n a n c e f o r c a p i t a l p r o j e c t s ? (b) Are the l e n d i n g methods o f f i n a n c i a l i n s t i t u t i o n s a d v e r s e l y a f f e c t e d by d i s t a n c e ? The e v a l u a t i o n was based on a l l o f the i n f o r m a t i o n a v a i l a b l e . T h i s i n f o r m a t i o n g e n e r a l l y does not y i e l d f i r m c o n c l u s i o n s or proven r e l a t i o n s h i p s , however, i t does p r o v i d e i n s i g h t on the above q u e s t i o n s . As w e l l , a d e s c r i p t i o n i s g i v e n o f the g e n e r a l economic environment a f f e c t i n g f o r e s t r y , p a r t i c u l a r l y the surveyed f i r m s , and t h i s d i s c u s s i o n should p l a c e i n p e r s p e c t i v e the r e l a t i v e m e r i t of the t h e s i s hypotheses. 2. General R e s u l t s f o r V a r i o u s I n s t i t u t i o n s (a) C h a r t e r e d banks The businessmen i n t e r v i e w e d without e x c e p t i o n were f a m i l i a r w i t h l o a n p o l i c i e s o f c h a r t e r e d banks, so t h e r e was no tendency f o r t h e i r knowledge to d i m i n i s h w i t h i n c r e a s i n g d i s t a n c e from banks. However, the businessmen f u r t h e r away from bank branches showed a l e s s e r tendency to approach a c h a r t e r e d bank when r e q u i r i n g a l o a n . On 71 the whole, 63 per cent of the respondents indicated that they used the most accessible bank branch, and both f a c t s lend support to the f r i c t i o n of distance hypothesis. Those businessmen who did not patronize the most accessible branch obviously did not consider distance as important as other f a c t o r s . The reasons for t h e i r behavior are relevant. Six businessmen (of sixteen) indicated that a s i g n i f i c a n t reason f o r bypassing closer branches was that t h e i r r e l a t i o n s at one branch had been established f o r a long period of time. I f the branch r o u t i n e l y grants them a good character r a t i n g , the se l e c t i o n of banking point i s j u s t i f i e d in terms of the favorable treatment received. Another factor which th i s response brings up i s that once r e l a t i o n s are established, the passage of time permits an accumulation of knowledge, good w i l l , etc., which overcomes distance problems. Nine p r i n c i p a l s indicated that they chose a branch with high d i s c r e t i o n a r y lending l i m i t s . These respondents believed therefore, that there were benefits from dealing with a branch having an experienced manager with higher l e v e l s of authority. Two others f e l t that t h e i r branch manager was more p r o f i c i e n t than managers at other branches, and three respondents reported that because they dealt with a p a r t i c u l a r banking company, they could not u t i l i z e a closer branch without switching banks. F i n a l l y , s i x out of seven other reasons c i t e d involved competition between banks: the patronized bank gave a more favorable d e a l . In summary, the e x c e p t i o n a l cases to the c o n t e n t i o n o f a f r i c t i o n o f d i s t a n c e i n banking demand p a t t e r n s can l a r g e l y be r a t i o n a l i z e d i n terms o f t h e o r y p r e s e n t e d i n Chapter Two. Those cases d e a l i n g w i t h c o m p e t i t i o n accounted f o r most s i t u a t i o n s where l a r g e d i s t a n c e s and many i n t e r v e n i n g branches were bypassed. Over 4 6 per cent o f the sampled f i r m s had t r i e d a t l e a s t once to get a b e t t e r l o a n d e a l by g o i n g to a second or t h i r d bank w i t h the same p r o p o s a l . The data i n d i c a t e d t h a t the f u r t h e r the f i r m from the n e a r e s t branch, the g r e a t e r was the p r o p e n s i t y to attempt to s w i t c h ( T a b l e 4 . 2 ) . T h i s r e l a t i o n supports the h y p o t h e s i s o f a f r i c t i o n o f d i s t a n c e o f supply i n b anking. Bank co m p e t i t i o n was n o t a b l y i n f l u e n c e d by a c t i v i t i e s o f the M e r c a n t i l e Bank. T h i s bank caused some o f the l o n g e r d i s t a n c e s i n r e l a t i o n t o the p a t r o n i z e d bank. In v a r i o u s r e s p e c t s , M e r c a n t i l e d i f f e r s from o t h e r Canadian banks. A l t h o u g h now l a r g e l y Canadian-owned, i t i s a f f i l i a t e d w i t h a l a r g e American bank which has v a s t i n t e r n a t i o n a l e x p e r i e n c e i n b u s i n e s s l e n d i n g . As w e l l , M e r c a n t i l e does not e x e r c i s e i t s r i g h t to take d e p o s i t s , but i n s t e a d r a i s e s money f o r l o a n disbursements by marketing l a r g e i s s u e s of s e c u r i t i e s i n the c a p i t a l market. T h i s g i v e the bank a lower p r o p o r t i o n o f s h o r t -term l i a b i l i t i e s , an o b v i o u s l y important c o n s i d e r a t i o n i n t e r m - l e n d i n g . 73 Table 4 . 2 CROSSTABULATIONi WHETHER TWO BAJ/KS WERE EVER APPROACHED WITH SAME LOAN PROPOSAL, VERSUS HIGHWAY MILEAGE TO NEAREST BRANCH BANK COUNT ROW PCT COL PCT TOT PCT BANKDIST UP TO 4" MILES -B ""5 TO 2 4 " 25 TO 6 0 " " -ROW TOTAL i QUALCOMP APPROACHED; 2 BNK 9 11 0 33 :V3 7 3 . 3 0 . 0 20 4 6 . 5 i ONE BANK ONLY 18 4 1 6 6 . 7 2 6 . 7 1 0 0 . 0 23 5 3 . 5 i COLUMN TOTAL 27 15 1 6 2 . 8 3 4 . 9 2 . 3 43 1 0 0 . 0 CHI SQUARE = 7 . 0 9 1 8 8 WITH 2 DEGREES OP FREEDOM SIGNIFICANCE = 0 . 0 2 8 8 CRAMER'S V = 0 . 4 0 6 1 1 74 I n d i c a t i o n s wrere t h a t M e r c a n t i l e BankC/swas an a g g r e s s i v e c ompetitor f o r medium-term l o a n s . At the time o f the study, t h i s bank had o n l y one o f f i c e i n B r i t i s h Columbia, and from t h i s c e n t r a l l o c a t i o n (Vancouver), a s p e c i a l i z e d team was d i s p a t c h e d to i n v e s t i g a t e investment p r o p o s a l s anywhere i n the p r o v i n c e . An i m p l i c i t p r e d i c t i o n o f f o r e g o i n g theory was t h a t i n s t i t u t i o n s o f t h i s type would have h i g h e r l o a n s t a n d a r d s because o f lower prob-a b i l i t y o f shading r i s k through improved a p p r a i s a l s o f c h a r a c t e r . T h i s a p p a r e n t l y was not the case, as i s suggested by a p a r a p h r a s i n g o f comments made by one o f s e v e r a l s u b j e c t s who mentioned d e a l i n g w i t h M e r c a n t i l e : "The company had been d e a l i n g w i t h ... [bank] , but they were d r a g g i n g t h e i r f e e t on the p r o p o s a l . IDB had l e t seven or ei&ht months go by without a yes o r no answer. The f i r m approached M e r c a n t i l e , who gave an answer w i t h i n s i x weeks o f the f i r s t c o n t a c t . IDB wanted q u i t e a b i t by way o f s e c u r i t y , but they would l i k e l y had taken i t i f they hadn't been so slow." M e r c a n t i l e Bank was a b l e t o move q u i c k l y i n t o t o t a l l y new investment s i t u a t i o n s and t o make loa n s which o t h e r i n s t i t u t i o n s had a v o i d e d . C h a r a c t e r assessments c o u l d n o t have p l a y e d a s i g n i f i c a n t r o l e i n t h e i r d e c i s i o n s . What i s suggested, perhaps, i s t h a t when an i n s t i t u t i o n knows what i n f o r m a t i o n i s r e q u i r e d to a p p r a i s e an investment, i t can move i n , c o l l e c t the i n f o r m a t i o n and make a p o s i t i v e d e c i s i o n without undue p r o c r a s t i n a t i o n . I t seems re a s o n a b l e t h a t M e r c a n t i l e would have charged a h i g h e r 1 r i s k premium than o t h e r banks because i n none o f the cases surveyed was i t a matter o f c h o o s i n g between o f f e r s from two banks - - i t was e i t h e r take 75 M e r c a n t i l e ' s o f f e r o r n o t expand. However, M e r c a n t i l e d i d d evelop a market a r e a encompassing the e n t i r e p r o v i n c e and t h e r e f o r e operated i n apparent c o n t r a d i c t i o n o f the t h e s i s hypotheses. The f o r e g o i n g d e a l t w i t h e f f e c t s on market areas o f banks caused by c o m p e t i t i o n . On another s c a l e , where d i s t a n c e s i n v o l v e d were not 'as extreme, the d i f f e r e n c e s i n the c r e d i t - g r a n t i n g c r i t e r i a o f bank managers o f f e r another e x p l a n a t i o n f o r v a r i a t i o n s i n the a t t r a c t i o n o f p a r t i c u l a r branches. Question H requested s u b j e c t s who had n e g o t i a t e d loans w i t h d i f f e r e n t bank managers to g i v e an o p i n i o n on whether t h e r e were n o t i c a b l e d i f f e r e n c e s i n the managers' c r i t e r i a f o r ex t e n d i n g c r e d i t . O v e r a l l , t w o - t h i r d s o f the s u b j e c t s i n d i c a t e d they had p e r c e i v e d such d i f f e r e n c e s , and t h e r e was l i t t l e v a r i a t i o n i n these r e s u l t s over the v a r i o u s r e g i o n s . The f o l l o w i n g paraphrase from an i n t e r v i e w r e p o r t was t y p i c a l o f many s u b j e c t s ' a t t i t u d e s : "He s a i d he hasn't d e a l t w i t h s e v e r a l branches o f the same bank, but a t h i s branch he sure has n o t i c e d a d i f f e r e n c e i n the managers they put i n every two y e a r s . He s a i d one guy w i l l be half-way r e a s o n a b l e 1 a n d then you get another guy who t i g h t e n s i t r i g h t up." The author's u n c e r t a i n t y about businessmens • knowledge o f the o p e r a t i n g environment o f banks was d i s p e l l e d d u r i n g the su r v e y . S u r p r i s i n g i n s i g h t i n t o f a c t o r s a f f e c t i n g s e r v i c e from banks was encountered, as the f o l l o w i n g paraphrase demonstrates: 76 "The respondent said that the truckers he has working for him cannot seem to get a nickel out of his own hank at . He felt that the problem was that the community is 90 per cent , [two large corporations] . These are very stable accounts and the manager does not really have to be very alert for the branch to show a profit.< He will not take a chance on anything small like the loggers. What the respondent does is send them to [another community] He said i t is a l i t t l e further to drive, but they are treated well, and usually get what they want. The [second] manager, at the same banking company, has a quite different set up; his branch has no single large account and he is sharp because he has to deal with hundreds of small accounts who are in a l l sorts of businesses. By contrast, the other manager has i t easy, and won't put out much effort or interest." In addition to recognizing the effect of the local business environment on branch operations, there was no mistaking some businessmen's awareness of differences in the personalities and business attitudes of managers: "He said that even though the banking environment was the same for the various banks, you had to realize there was a world of difference in what the various men would do for you. Some guys will be very polite, f i l l out a l l the forms and ship the request away very efficiently, and when the answer comes back 'no', they will just explain this to the customer. Other guys would be pushing your case, bending this or that rule to try another approach, and will get the loan made even under the same regulations. He said that their banker was one of the pushers and shovers, and that i f he were otherwise, they would change banks promptly. About ten years ago the manager of their bank, who was an older man, had questioned: 'Why do you want to expand more? You're big enough now.' He said: 'Bang, that was i t for him!'" The comments showed as well that there were differences in what was expected of their branch managers. One subject commented on the transfer of the former manager by noting the loss of financial advice which had been used by the company: 77 "The respondent commented t h a t there i s a t e r r i b l e d i f f e r e n c e between managers. Por years they had a manager whose name was , and he knew l o g g i n g , s a w m i l l i n g , the market f o r f o r e s t p r o d u c t s , and a l s o about f i n a n c i a l matters which were out o f the lumberman's scope. He was a good manager and they depended on h i s a d v i c e an awful l o t . When they were wrong on something or o t h e r , he would t e l l them so, and why they were wrong. The respondent s a i d t h a t no matter how smart you a r e , and e x p e r i e n c e d i n the lumber i n d u s t r y , t h e r e are times and o c c a s i o n s when you can s t a r t a bad p r o j e c t . At these times i t h e l p s to have a knowledgeable banker on hand. The p r e s e n t manager i s not the same. He doesn't understand f o r e s t r y , and whatever they say i s okay w i t h him. I t i s the same wit h the r e g i o n a l o f f i c e , they w i l l okay i t as w e l l . The f i n a n c i a l a d v i c e they used to get j u s t i s n ' t t h e r e now, and they have to put up w i t h the u n c e r t a i n t y . " R e l i a n c e upon good branch managers f o r f i n a n c i a l a d v i c e was not common t o a l l f i r m s . For example, the f i n a n c i a l d i r e c t o r o f one o f the l a r g e s t companies i n the sample f e l t t h a t people i n the branches l a c k e d u n d e r s t a n d i n g o f the problems faced by l a r g e b u s i n e s s e s , and i t was b e t t e r to d e a l w i t h the banks' r e g i o n a l h e a d - o f f i c e s . Perhaps the most c o n s i s t e n t c r i t i c i s m o f banks (and o t h e r i n s t i t u t i o n s ) came from the ranks o f the l o g g i n g companies i n the sample. The l o g g e r s were u n i f o r m l y c r i t i c a l o f the degree of knowledge o f t h e i r i n d u s t r y p e r c e i v e d to be h e l d by n e a r l y a l l branch bank managers. A p a r t i c u l a r l y a r t i c u l a t e account of the reasons f o r t h i s a t t i t u d e i s r e v e a l e d by the f o l l o w i n g segments o f one i n t e r v i e w r e p o r t ; "He s a i d he l o o k s a t i t t h i s way; i n the b e g i n n i n g a l o g g e r s t a r t s o f f w i t h some b a s i c equipment, say $50,000 worth. He may not be an i n e x p e r i e n c e d man i n l o g g i n g , but he w i l l not have c r e d i b i l i t y yet w i t h f i n a n c i a l i n s t i t u t i o n s , l a r g e f o r e s t r y companies, or o t h e r l o g g e r s . By c r e d i b i l i t y i s meant t h a t the o p e r a t i o n i s sound, run f a i r l y e f f i c i e n t l y and most o f a l l , t h a t the l o g g e r pays h i s b i l l s on time and can be depended 78 upon to do so. A f t e r time goes "by he might get b i g g e r and w i l l have e s t a b l i s h e d h i m s e l f as an o p e r a t o r , but i n the b e g i n n i n g he has to go to the h i g h e r c o s t money sources'-and pay on the o r d e r o f 14-15 per cent f o r h i s c a p i t a l . I f the l o g g e r can a v o i d a major p i t f a l l , namely committing too l a r g e a p o r t i o n of h i s e a r n i n g s to e q u i t y payments, he might be a b l e t o s u r v i v e the i n i t i a l d i f f i c u l t expansion p e r i o d . He s a i d t h a t time and time agai n he sees t h i s happen, when a company commits i t s e l f h e a v i l y ( f o r example, d u r i n g good y e a r s ) , and doesn't s u r v i v e the bumps t h a t are ahead. He s a i d t h a t the p o s i t i o n o f the l o g g e r improves c o n s i d e r a b l y i f he has e s t a b l i s h e d c r e d i b i l i t y as an o p e r a t o r , and can go to a f i n a n c i a l i n s t i t u t i o n w i t h a s o l i d c o n t r a c t which w i l l ensure use o f h i s equipment f o r f i v e years or so. He s a i d the c o n t r a c t has to be a sound one, w i t h c l a u s e s b u i l t i n which a l l o w f o r the i n c r e a s e d c o s t s to the l o g g e r , and so on. w i t h t h i s c o n t r a c t and c r e d i b i l i t y , the banks w i l l l o o s e n up and g i v e a b e t t e r l i n e o f c r e d i t . However, he s a i d you are never r e a l l y s a f e . The matter o f n e g o t i a t i n g a c o n t r a c t i s a t r i c k y t h i n g i n i t s e l f . W e l l - e s t a b l i s h e d companies w i l l sometimes go i n t o s i t u a t i o n s where they r e a l l y s h o u l d n ' t have. The p r o f i t a b i l i t y of a l o g g i n g show depends on a l o t of d i f f e r e n t t h i n g s : the geography o f the s i t e , s l o p e , s i z e o f t r e e s , c o s t o f making roads, and so on. I t i s v e r y d i f f i c u l t to judge a l l o f these f a c t o r s and some people a r e n ' t v e r y good a t i t . Prom the v i e w p o i n t o f banks and o t h e r f i n a n c i a l i n s t i t u t i o n s , the whole matter i s completely i n the dark, and they r e a l l y don't know whether, the d e a l i s a r e a s o n a b l e one or a poor one. ... Sometimes, not knowing a n y t h i n g of the l o g g i n g show i t w i l l i n v o l v e , an i n s t i t u t i o n w i l l encourage c a p i t a l investment on the b a s i s o f a c o n t r a c t , and i f the show was l e s s p r o f i t a b l e than expected, the o p e r a t o r w i l l be i n t r o u b l e i n due time. ... He s a i d t h a t the banks are very h i t - a n d - m i s s i n t h e i r u n d e r s t a n d i n g o f the l o g g i n g b u s i n e s s . He d e a l s w i t h [bank] a t a main branch, where the manager i s extremely knowledgeable about the l o g g i n g b u s i n e s s and knows the f a c t o r s which; can a f f e c t i t . " The f o r e g o i n g q u o t a t i o n s i l l u s t r a t e an important r e l a t i o n s h i p : the c r e d i t o f f i c e r must have a h i g h degree o f knowledge on the i n d u s t r i a l s e c t o r to be a b l e to' d i s c e r n r e l e v a n t i n f o r m a t i o n arid^ t o c o r r e c t l y i n t e r p r e t i t . D i s t a n c e c o n s i d e r a t i o n s were only o f secondary 79 c o n s i d e r a t i o n , p r o v i d e d the knowledgeable c r e d i t o f f i c e r remained i n t h e same g e n e r a l r e g i o n . The need f o r h i g h knowledge i s not p a r t i c u l a r l y b e n e f i c i a l f o r growth of the l o g g i n g i n d u s t r y , s i n c e r e l a t i v e l y few c r e d i t managers are capable o f p r o v i d i n g an o p t i m a l balance between c r e d i t and r e s t r a i n t . Given i n a b i l i t y to cope w i t h the u n c e r t a i n t y , o t h e r managers would make more e r r o r s . These e r r o r s o c c u r p a r t i c u l a r l y i n the d i r e c t i o n o f undue r e s t r a i n t , assuming t h a t what was l e a r n e d about the sources of f i n a n c i n g f o r l o g g i n g c o n t r a c t o r s i s v a l i d . Before p a s s i n g from banking, i t i s worthwhile to note t h a t even though some co m p e t i t i o n was e v i d e n t , s e v e r a l respondents were s t r o n g l y c r i t i c a l o f the degree o f c o m p e t i t i o n between banks i n B r i t i s h Columbia. These o p i n i o n s are important because o f t h e i r r e c u r r i n g p o l i t i c a l e x p r e s s i o n . The f o l l o w i n g a b s t r a c t i o n s from one i n t e r v i e w r e c o r d i l l u s t r a t e the n a t u r e o f these opinions} "He f e l t t h a t the bankers were going to have t o change t h e i r method o f o p e r a t i o n . He s a i d t h a t a t the Western P r e m i e r s ' Conference the major i s s u e was t h a t bankers were g o i n g to have to pay more a t t e n t i o n to the west, or o t h e r banks were g o i n g to have to come i n . He s a i d t h a t these ..things p r o b a b l y c o n t r i b u t e to the e a s i n g o f the s i t u a t i o n f o r the west. ... He s a i d t h a t i s the s i t u a t i o n we have. I t was e x a c t l y the same way i n e a r l y C a l i f o r n i a . . . . The businessmen i n the west had to d e a l w i t h banks centered i n the e a s t , and the s i t u a t i o n was found to be u n s a t i s -f a c t o r y . Over time, another i n s t i t u t i o n grew up which s a t i s f i e d people i n the west.... 80 He s a i d t h a t i n h i s mind there was no doubt t h a t banking was too c e n t r a l i z e d i n the e a s t , and the good people who are a b l e t o make d e c i s i o n s are soon sent down t h e r e as w e l l . He f e l t t h a t the bankers d i d not take one s t e p on t h i s s i d e o f the Rockies u n l e s s they r e a l l y had to, and much p r e f e r r e d to i n v e s t i n the e a s t , c l o s e r to the c e n t r a l l o c a t i o n s , where investments are p r o b a b l y e a s i e r t o keep an eye on. He s a i d the banks have to get more people who can make d e c i s i o n s and put them i n the west. He s a i d i t i s r i d i c u l o u s t h a t your l o a n a p p l i c a t i o n should have to be sent a l l the way t o . . . [a l a r g e e a s t e r n c i t y ] f o r c o n s i d e r a t i o n . He s a i d t h a t j u s t a couple of y e a r s ago t h i s was the case f o r a c r e d i t o f $75,000. He s a i d t h a t amount i s n o t h i n g . " I t would be d i f f i c u l t t o e v a l u a t e the h y p o t h e s i s o f t h e r e being broad r e g i o n a l investment p r e f e r e n c e s of c h a r t e r e d banks. There are d i f f e r e n c e s i n the u n d e r l y i n g r e g i o n a l economies, and v a r y i n g l e v e l s o f investment by banks co u l d be r e l a t e d to u n c e r t a i n t y o f investment i n h i g h e r r i s k i n d u s t r i e s c o n c e n t r a t e d i n p a r t i c u l a r r e g i o n s . The p r e s e n t study could not e v a l u a t e banking p a t t e r n s a t such a broad s c a l e o f g e n e r a l i z a t i o n . (b) I n d u s t r i a l Development Bank An a c t i v e and sometimes c o n t r o v e r s i a l s u p p l i e r o f medium and long-term c r e d i t , t h i s government-sponsored i n s t i t u t i o n supplements c r e d i t a v a i l a b l e from banks and o t h e r s o u r c e s . The degree o f a c c e s s i b i l i t y o f f e r e d by t h e i r l i m i t e d number o f branch o f f i c e s i s supplemented by p e r i o d i c p r o m o t i o n a l v i s i t s of r e p r e s e n t a t i v e s to s m a l l e r o u t l y i n g communities. 81 1) F r i c t i o n of d i s t a n c e o f demand The c o n t e n t i o n t h a t a f r i c t i o n o f d i s t a n c e would a f f e c t p o t e n t i a l customers o f t h i s i n s t i t u t i o n was a s s e s s e d by s e v e r a l d i f f e r e n t , q u e s t i o n s . F i r s t , Q u estion 17 d e a l t w i t h knowledge o f the l o a n p o l i c i e s o f IDB. While there was a degree o f ignorance (16.3 per cent o f the cases n e i t h e r knew where the IDB o f f i c e s might he n o r had read the l o a n l i t e r a t u r e ) , t h i s d i d n o t v a r y w i t h d i s t a n c e from IDB "branch o f f i c e s . S u r p r i s i n g l y , the independent b u s i n e s s f i r m s were c o n s i s t e n t l y l e s s aware o f IDB. ' With r e g a r d to r e g i o n a l v a r i a t i o n o f knowledge o f IDB, t h e r e was markedly l e s s i n t e r e s t i n IDB d i s p l a y e d by the f i r m s l o c a t e d i n the Lower Mainland and F r a s e r V a l l e y r e g i o n . T h i s d i f f e r e n c e may have been due i n p a r t to the g r e a t e r s a t i s f a c t i o n these f i r m s r e c e i v e d from t h e i r r e l a t i o n s w i t h other s e c t o r s of the c a p i t a l market l o c a t e d i n Vancouver. Another method o f measuring the f r i c t i o n o f d i s t a n c e o f demand was to see whether o r not the p r o p e n s i t y to approach IDB f o r l o a n s was r e l a t e d to d i s t a n c e from the n e a r e s t IDB branch o f f i c e . The data showed no r e l a t i o n -s h i p between these f a c t o r s . 2) F r i c t i o n o f d i s t a n c e o f supply The c o n t e n t i o n t h a t d i s t a n c e would a f f e c t the IDB i n g r a n t i n g l o a n s was a s s e s s e d i n Question 23. Table 4.3 shows the f i n d i n g s w i t h r e s p e c t to these two f a c t o r s . 82 Tabl e 4.3 CROSSTABULATION: OUTCOME OP APPROACH TO INDUSTRIAL DEVELOPMENT BANK (IDB) POR A LOAN ON MOST RECENT EXPANSION PROJECT, VERSUS DISTANCE TO NEAREST IDB OFFICE COUNT ROW PCT COL PCT TOT PCT REMOTNES 1 TO 10 11 - 100 101-250 MILES ROW TOTAL Q23IDB SATISFACTRY LOAN I 3 2 1 75.0 50.0 50.0 I 6 60.0 I i LOAN' REFUSED 1 0 1 0 0.0 25.0 0.0 1 10.0 i UNSATISF'TRY OFR 1 1 1 25 .0 25.0 50.0 3 30.0 I COLUMN TOTAL _ 4 4 2 40.0. 40.0 20.0 10 100.0 CHI SQUARE = 2.08333 WITH 4 DEGREES OF FREEDOM SIGNIFICANCE = 0.7204 CRAMER'S V = 0.32275 NUMBER OF MISSING OBSERVATIONS = 33 83 There was not a l a r g e enough sample to draw f i r m con-c l u s i o n s , but no a s s o c i a t i o n seems e v i d e n t . C e r t a i n e x p l a n a t i o n s o f t h i s f i n d i n g arose from comments o f s u b j e c t s . F i r s t l y , IDB was s a i d t o have h i g h standards i n g r a n t i n g l o a n s , and t h e r e f o r e would be u n l i k e l y t o shade r i s k because of c o n f i d e n c e i n the p r i n c i p a l s , and so on. I t i s s i g n i f i c a n t t h a t o n l y 60 per cent o f those a p p r o a c h i n g IDB ob t a i n e d a s a t i s f a c t o r y term l o a n , compared t o 93 per cent f o r c h a r t e r e d banks. A second f a c t o r m i t i g a t i n g the i n f l u e n c e o f d i s t a n c e was t h a t the i n s t i t u t i o n takes c o n s i d e r a b l e time to e v a l u a t e new a p p l i c a t i o n s . Over p e r i o d s as l o n g as those encountered (up to f o u r t e e n months), i t i s u n l i k e l y t h a t many f a c t o r s , l o c a l o r otherwise, c o u l d have been o v e r l o o k e d . Moreover, IDB a l s o a p p a r e n t l y co-operates e x t e n s i v e l y w i t h c h a r t e r e d banks, who co u l d supply l o c a l i n f o r m a t i o n , thus f u r t h e r b r e a k i n g down any f r i c t i o n o f d i s t a n c e . In c o n c l u s i o n , the I n d u s t r i a l Development Bank d i d n o t seem to be s i g n i f i c a n t l y a f f e c t e d by a c c e s s i b i l i t y c o n s i d e r a t i o n s . Granted, i t i s a government-sponsored i n s t i t u t i o n s p e c i f i c a l l y charged w i t h r e s p o n s i b i l i t y t o e l i m i n a t e c r e d i t gaps, s p a t i a l or o t h e r w i s e . Furthermore, i t has a p o l i c y o f sending t r a v e l l i n g r e p r e s e n t a t i v e s t o s m a l l communities, and wh i l e e f f e c t i v e i n r e d u c i n g demand-based f r i c t i o n , the s c a l e o f t h i s l a t t e r p r a c t i c e p o s s i b l y would be viewed as uneconomical by p r i v a t e financial institutions. 84 (c) Roynat Ltd. There were Roynat branch offices in only two of the regional centers (Vancouver, Prince George), therefore the available distance measures did not accurately reflect the distance of each firm from a Roynat office. In the place of distance measures, variations in credit are discussed with respect to general differences between regions. Firstly, with respect to friction of distance of demand, knowledge of Roynat's loan policy showed some association #o region. In a l l three sub-questions on this matter (Question 17), the Kootenay region showed a low degree of awareness of Roynat, and the Prince George region showed high awareness. Unexpectedly, Lower Mainland and Fraser Valley firms did not exhibit much interest in Roynat, despite the fact that a main branch is located in Vancouver (see Table 4.4). The situation was similar to that for IDB» where firms accessible to Vancouver showed less interest. Apart from the exception for Vancouver, Table 4.4 suggests that i f there are no permanent branches of an institution anywhere in the general region, the friction of distance of demand will be more apparent. Occasional visits are made to larger outlying centers by Roynat officials, and this may explain why some outlying/firms had held discussions with the institution. 85 The q u e s t i o n o f whether p r o p e n s i t y to approach Roynat v a r i e d w i t h a c c e s s i b i l i t y c o u l d not be s t r i c t l y e v a l u a t e d , s i n c e so few f i r m s had demonstrated c o n t a c t . More l o o s e l y e v a l u a t e d , t h e r e seemed to be some r e l a t i o n -s h i p to a c c e s s i b i l i t y , s i n c e a l l of the f i r m s r e c e n t l y a p p r o a c h i n g Roynat i n the sample were from the P r i n c e George r e g i o n , where a branch i s l o c a t e d . The second q u e s t i o n was whether t h e r e was a f r i c t i o n o f d i s t a n c e a f f e c t i n g the supply o f Roynat l o a n s . The data would not permit any e v a l u a t i o n , s i n c e o n l y three f i r m s had approached Roynat. Only one o f these f i r m s o b t a i n e d a s a t i s f a c t o r y l o a n . I t should be noted, however, t h a t Roynat*s involvement i n the f o r e s t i n d u s t r y was more e x t e n s i v e than these few c o n t a c t s i l l u s t r a t e . P r i n c i p a l s o f a number o f o t h e r f i r m s mentioned o b t a i n i n g Roynat l o a n s i n p e r i o d s p r i o r to t h a t reviewed i n t h e q u e s t i o n n a i r e . The author gained the i m p r e s s i o n t h a t i Roynat operated throughout the P r o v i n c e i n g r a n t i n g l o a n s , but was q u i t e s e l e c t i v e i n i t s investments. (d) Commercial Finance Companies Finance companies were not q u i t e as d i s p e r s e d over the p r o v i n c e as c h a r t e r e d banks. However, i n a d d i t i o n t o the branch o f f i c e s i n v a r i o u s r e g i o n a l c e n t e r s , equipment d e a l e r s u s u a l l y have arrangements w i t h a f i n a n c e company, g i v i n g most businessmen a c c e s s to a t l e a s t one i n s t i t u t i o n of t h i s t y p e . 86 Tabl e 4.4 CROSSTABULATION: WHETHER FIRM HAD AT ANY TIME DISCUSSED. BUSINESS LOANS WITH OFFICIALS OF ROYNAT LTD. VERSUS REGIONAL CENTER CLOSEST TO THE FIRM I REGION COUNT ROW PCT COL PCT TOT PCT Q17D1SRN YES NO ROW TOTAL COLUMN TOTAL CHI SQUARE = 4.88230 WITH 2 DEGREES OF FREEDOM SIGNIFICANCE = 0.3215 CRAMER * S V = 0.32999 87 The r e l e v a n t q u e s t i o n was whether f i r m s remote from o t h e r i n s t i t u t i o n s tended to d e a l more w i t h f i n a n c e companies because o f t h e i r ( h y p o t h e s i z e d ) u n s a t i s f a c t o r y r e l a t i o n s w i t h lower c o s t term l e n d e r s . The data on awareness o f f i n a n c e companies' l o a n p o l i c i e s showed t h a t , as h y p o t h e s i z e d , businessmen f u r t h e r away from c h a r t e r e d banks were more informed about f i n a n c e companies. The same was true f o r businessmen f u r t h e r away from I n d u s t r i a l Development Bank. However, i n n e i t h e r case was the a s s o c i a t i o n s t r o n g enough to be s t a t i s t i c a l l y s i g n i f i c a n t . Sampled f i r m s who were l e s s a c c e s s i b l e to c h a r t e r e d banks a l s o demonstrated somewhat g r e a t e r p r o p e n s i t y to approach f i n a n c e companies on t h e i r l a t e s t p r o j e c t , as Table 4.5 shows. The h y p o t h e s i s was n o t supported w i t h r e s p e c t to a c c e s s i b i l i t y to the I n d u s t r i a l Development Bank, however. To supplement the d a t a f o r the c u r r e n t s i t u a t i o n , the survey a l s o probed the extent to which f i r m s had h i s t o r i c a l l y f i n a n c e d c a p i t a l goods through vendor-a s s o c i a t e d f i n a n c e companies. For both c h a r t e r e d banks and the IDB, the r e s u l t s s l i g h t l y supported the c o n t e n t i o n t h a t remote f i r m s would d e a l more w i t h f i n a n c e companies. To review, t h e r e was some support f o r the c o n t e n t i o n t h a t remote borrowers*are more c o n s t r a i n e d to use f i n a n c e companies. The probable reason g r e a t e r support was not found was t h a t a number o f s u b j e c t s T a b l e 4.5 CROSSTABULATION: WHETHER FIRM APPROACHED A FINANCE COMPANY FOR A LOAN ON LATEST EXPANSION PROJECT VERSUS HIGHWAY MILEAGE TO NEAREST CHARTERED BANK BRANCH COUNT ROW PCT COL PCT TOT PCT BANKDIST UP TO 4 MILES -B 5 TO 24 25 TO 60 ROW TOTAL i CONTACFC YES 1 6 5.6 46.2 0 0.0 7 21.9 i i NO 17 7 1 94.4 53.8 100.0 25 78.1 i COLUMN TOTAL 18 13 1 56.3 40.6 3.1 — 32 100.0 CHI SQUARE = 7.56903 WITH 2 DEGREES OF FREEDOM SIGNIFICANCE = 0.0227 CRAMER'S V = 0.48635 NUMBER OF MISSING OBSERVATIONS = 11 89 suggested that dealing with a finance company was some-times preferable to dealing with a lower cost loan source. "He said that the difference between a bank and a finance company was, first of a l l , the cost of Hie loan is higher from "a commercial bank1 [finance company] , but the chartered banks tend to tie up a l l of your machinery for security just to finance one new machine. The finance companies never do that. The only way around the problem, he-supposed, was to have very good relations with the bank." 1 0 The foregoing suggests that the strategic benefit from dealing with a finance company may outweigh the higher costs. With so many unexpected downturns in the industry, when things do go bad, the company doesn't lose'all of its assets, only those currently financed. Other res-pondents were pleased with the low degree of interference by finance companies in management affairs of the borrower: "He said that the situation with the finance companies was different in some ways. As long as you make the payments, they never bother you. The banks, on the other hand, will occasionally ..Step in and request you to take some'action or another." y "He said that he would never go to a bank for a term loan ... because banks are by nature a short-term lender. Their l i a b i l i t i e s and deposits are short-term and their loans have to be as well. He said that i f there was one criticism he were to make of banks, i t would be that in times of easy money they will encourage you to make a term loan. However, in a year or two, when money is tight, they will be watching over your shoulder, reminding you and worrying about the loan, even though they do not take the drastic step of calling i t in ... He said i t is better to relieve yourself of this pressure by dealing with a term-loan lender. Roynat and the finance companies, IAC, say, do not bother you with changes in credit conditions or anything like that. As long as you meet the payments and loan obligations you are your own boss."^u Other respondents suggested that high interest rates did not concern them too much because these were business expenses for income tax purposes. In the final analysis, though, only 28.6 per cent of the firms approaching a finance company for a recent loan were satisfied with the outcome. This was the-lowest ratio for Hie various types of institutions, and one would infer that finance company loans are not preferred by most businessmen. (e) Alternative Sources of Finance The objective of Question 28 was to discover whether firms inaccessible to low-cost lenders had placed greater reliance upon alternatives. The results were inconclusive. There was a tendency for firms further from chartered banks to use contractors, but a decreasing tendency for them to use leasing. A second measure of accessibility was given by distance to IDB offices. Here there was less reliance on contractors with increasing remoteness, contrary to the hypothesis. Similarly, there was a lower reliance on leasing with increasing distance. The above findings are explained partly by the fact that the more remote firms on average were smaller. They would be less likely to make efficient use of contractors or leased equipment, regardless of accessibility. 3. Overview of Forest Industry Changes Previous sections of this chapter presented some of the detailed thesis findings. Because the approach 91 was to examine results of particular questions, these sections as a whole did not provide an overview of the broad forces which have shaped the forest industry. Yet, such an overview is necessary, particularly to evaluate finance problems in the context of other significant factors which are unique to the forest industry. By the late 1960's, "the B.C.. forest industry had lost the expansive drive which,had characterized its development for over two decades. The trend does not appear to be temporary. The primary cause of slower growth was that the industry had reached the limits of its raw materials, i t could not continue harvesting timber at an increasing rate without facing absolute future decline. In recognition that forest reserves were becoming depleted, the forest service instituted a system of sustained yield cutting rights allocation in the 1960's. The provincial regulations ensured that in aggregate, the industry would be able to operate at given level of activity for an indefinite period of time. One of the side-effects of this policy was that larger, expanding firms became more interested in purchasing smaller saw mills or logging operations, etc.; ^ solely for the purpose, of acquiring more timber rights. In the mid-1960's, a number of pulp mills were built, creating additional demand for wood fibres particularly in the form of sawmill/planermill byproducts, ie., sawdust and woodchips. When the pulp mills attempted to secure 92 adequate wood supplies, another wave of take overs of smaller mills was set off, once again to secure more cutting rights. During this period, hundreds of small mills l i t e r a l l y disappeared. One respondent noted that in the Kootenay region alone, over 60 mills' closed during the last decade. Most of the mills which were bought were simply closed down and the log supplies directed to large forest industry complexes in central locations. This led to a loss of jobs, since the larger mills required far fewer employees for the same production level. It also meant that small outlying communities lost much of their basic industry. In one instance, a respondent pointed out where two mills were bought by a giant forestry firm, then closed out and consolidated into a complex in a larger community. The respondent said there was a net loss of some 100 jobs, and businesses in the small community were soon closing their doors. Around 1970, provincial regulations were passed which disallowed unconditional private transfer of timber rights. Upon sale or cessation of a company, timber rights would henceforth revert to the crown. In addition, i principals wishing to sell their company were required to seek prior approval of the minister. In practice, these regulations meant that the forest service would not approve takeovers i f jobs would be lost. It is not surprising that these regulations drastically stemmed the takeovers of small mills. Existing owners could not 93 guarantee t h a t t h e i r timber alo'ttment would be a v a i l a b l e , and as one p r i n c i p a l put i t , "without timber s u p p l i e s , the m i l l i s j u s t a bag f i l l e d w i t h hot a i r . " The government r e g u l a t i o n s had the d e s i r e d e f f e c t o f s t o p p i n g the d e c l i n e o f f o r e s t i n d u s t r y employment through c e n t r a l i z a t i o n . However, they d i d not stop a l l s a l e s of s m a l l e r f i r m s and t r a n s f e r s o f the timber r i g h t s . The a u t h o r encountered a few cases i n v a r i o u s r e g i o n s where a Canadian owner had r e c e n t l y s o l d out and the new owners had secured adequate timber l e a s e s from the p r o v i n c e . P a r t i c u l a r l y where f o r e i g n c a p i t a l was i n v o l v e d ( u s u a l l y Japanese or American), the m i l l would be r e c a p i t a l i z e d ( w i t h h e l p o f Canadian f i n a n c i a l i n s t i t u t i o n s ) , modernized, and i t s p r o d u c t i o n c o n s i d e r a b l y stepped up. The r e s u l t was an i n c r e a s e i n employment and a boost to the economy of v a r i o u s medium-sized communities. The p r o d u c t i o n i n c r e a s e was p o s s i b l e a p p a r e n t l y because i n the f o r e s t d i s t r i c t s i n v o l v e d , the annual h a r v e s t had not y e t e q u a l l e d the a l l o w a b l e c u t . Expansion i s s t i l l t a k i n g p l a c e , but w i t h i n more c l o s e l y p r e s c r i b e d l i m i t s than i n e a r l i e r p e r i o d s . There was a s i g n i f i c a n t v a r i a t i o n i n the f o r e s t r y environment over the v a r i o u s r e g i o n s of the p r o v i n c e . In the Kootenays, f o r example, s e v e r a l f i r m s noted t h a t expansion was d i f f i c u l t because they were a l r e a d y a t t h e i r maximum a l l o w a b l e c u t . The more severe l i m i t a t i o n s o f the r e s o u r c e i n the Kootenays p o s s i b l y e x p l a i n s the s m a l l e r i n t e r e s t o f p r i v a t e f i n a n c i a l i n s t i t u t i o n s i n the r e g i o n . 94 In place of the private intermediaries, i t was found that public financial institutions were strongly represented. The federal Department of Regional Economic Expansion (DREE), IDB, and even the local credit unions were very active in lending to forestry firms. In the Kootenays, there tended to be more financing extended within the industry as well. For example, contract truck loggers were often accomodated by advances from the sawmill company, rather than a financial intermediary. An extreme local shortage of truck loggers had been precipitated by the International Woodworkers Association's i n i t i a t i o n of a 40 hour week for employees, and sawmills were forced to replace former ' operator employees by private contractors to avoid heavy overtime wage payments. The shortage of contractors was alleviated by some mills l i t e r a l l y starting up contracting businesses for former employees, and this close relationship has persisted. The continued v i a b i l i t y of the small mills in the Kootenay region, in the face of a limited resource base, i s probably explained by the greater accessibility to the U.S.. market than is the case for mills in the north central interior. In the Okanagan region, the limited timber resources were also a major constraint for small m i l l s . Slumps in the market for sawn lumber was a serious concern as well. Over a six month period, the price f e l l 40 per cent then gradually regained 30 per cent. Under these conditions, 95 the goodwill of the forest service is seen as important by the principals of small companies. For fear that the province may believe the company does not require its allocated timber, layoffs of men (caused by poor market conditions) are accomplished gradually and without publicity. On the contrary, when a mill is adding another shift, the whole crew is hired at once and the local media contacted, etc., to ensure that the forest service gets the message. The Okanagan region has strong ties to Vancouver. Equipment parts and other supplies are usually more readily available directly from Vancouver than from the nearest regional center. Many small firms in the Okanagan region have developed sidelines in product specialties which insulate them from the severe fluctuations in the market for housing construction materials. For example, firms may have contracts to supply railroad ties, mine timbers, wooden boxes, crates, pallets or other products. These contracts allow the small firms to survive the severe demand fluctuations which force many others out of business. Unfortunately, while such contracts permit survival, they are a source of additional financing demand. The large companies whom they supply typically pay the accounts 90 days after receipt of goods. In the interim, the small mill must finance payrolls, etc. through a financial institution. This procedure marginally increases the finance available to the railroads, canneries, etc., 96 at the expense of the small entrepreneurs. Prince George is the hub of the North Central Interior Region, but i t was also found that this region has close ties to Vancouver (for e.g., daily jet airplane services link the two centers). The forest reserves are being pushed quite far back, and Prince George has lost its frontier image. While s t i l l dependent upon forestry, tertiary employment is becoming significant. The forest industry in the North Central Interior is very dependent upon the United States' housing market (approximately 95 per cent of their lumber products), and is therefore subject to a l l of the imponderable fluctuations of U.S. monetary and housing policies and general economic conditions. The pricing system for lumber is FOB (at point of delivery). Mills must absorb the transportation costs, essentially, and this puts the North Central Interior at a disadvantage. Long distances must be overcome by r a i l and the freight rates are always subject to increase. The only costs which can be affected by management decisions are production costs. The profit squeeze has made the northern mills vocal opponents of provincial stumpage fee increases, and they were found to be very hard-nosed with their contractors compared to mills in other regions. In the Lower Mainland and Fraser Valley Region, the search for timber resources had been intense. One principal reported spending evenings and weekends over a ten year period, looking up ownership records for 97 alienated lands and contacting the owners for possible sale of their timber. Many firms buy the logs from lumber brokers, out of the water. Although they must pay premium prices, these companies fare reasonable well. Often, they serve the offshore market and are immune to short-term U.S. price fluctuations. Also, when serving the U.S. market, their option of using cheaper water shipment gives them cost advantages over interior mills in serving western markets. Even the smaller firms located in the Lower Mainland Region were generally well-established and showed l i t t l e interest in IDB or Roynat, for example. The chartered banks appeared to give them wholly satisfactory treatment. Various respondents said that there were bank loans officers in the Vancouver area who were extremely competent in forest industry lending, an obviously important consideration. On Vancouver Island, dominance of large corp-orations was apparent, and very few independent medium-sized mills remain. Foreign capital has been used to purchase and recapitalize some small but viable operations, and domestic capital has been involved in others. The ease of collecting logs and shipping the finished products by t i d a l waters explains much of the attractiveness of Vancouver Island production sites. In addition, the forests are very productive on the Island even on a sustained yield basis. 98 Coastal logging operations were found to be generally inaccessible by car. Many operations are reached only by float-plane, tugboat or radio. Their head-office functions are performed either at their home or accountant's office, which would be located in an urban center. Many respondents said that they had as many contacts directly with Vancouver as with the smaller urban centers located on the Island. As i t had in a l l other regions, Vancouver dominated a l l other centers as the hub of communications and travel patterns. SUMMARY The field work results have been described in this chapter. Much of the insight acquired was the result of discussions with respondents rather than analysis of the questionnaires. The results did not support the hypotheses as strongly as had been anticipated. The review of survey findings was placed in the context of the economic and political environment of the forest industry. The wide perspective of forestry helped to moderate expectations concerning the real growth potential of smaller forestry firms, taking into consideration a l l of the external forces which are beyond the control of any small firm's management. The uniqueness of the forest industry environ-ment discouraged the author from attempting to generalize the survey results to other industries. Next, Chapter Five reviews and summarizes the entire thesis. 99 REFERENCES i A listing of the names of these variables together with their marginal frequencies is given in Appendix A. In three exceptional questions (nos. 9, 19, 26), each respondent could have correctly selected more than one appropriate response. It was not foreseen that this design would prevent the application of statistical analysis to these questions. The problem arose because of the stipulation that the number of observations in a contingency table (see reference 7, below) must equal the number of cases in the sample. Thusly, observations had to be independent, and would not be i f one case were to count as two observations (see also Appendix B). These types of questions are useful in maintaining rapport with interview subjects however, since responses can be more closely tailored to actual situations. •^R. S. Weiss, Statistics in Social Research: An Introduction (New York: Wiley, 1968), p. 178. ^Of course, with interval level data, the degree and direction of association (then termed correlation) can be much more neatly summarized in terms of plus or minus correlation coefficients. In the present case, use of plus or minus figures would be often misleading. -'The frustrations of this process were largely eliminated by the availability of the SPSS subprogram "CROSSTABS" on the University of British Columbia's computer installation (IBM System/360). See: N. H. Nie, D. H. Bent, & C H. Hull, SPSS: Statistical Package for  the Social Sciences (Toronto: McGraw-Hill, 1970), pp. 1-128 (especially pp. 115-128); also S. Kita, R. Morley, UBC SPSS: Introduction to SPSS at UBC Vancouver: University of British Columbia Press, 1973), 4 pp. L > c A more complete description of these statistics and their present use is given in Appendix B. . A^ contingency table is defined as a joint frequency distribution of two variables showing the simultaneous position of cases on the subgroups of these variables. Q These variables were independent by definition. That is, they were deduced to be influential upon financing experiences of companies on the basis of overall knowledge of the situation. However, the relationships were s t i l l somewhat uncertain, and the design only went as far as including these external factors in the analysis. To evaluate these "hypotheses", more study is required. 100 Q I t was d e s i r a b l e t o sample a c c o r d i n g to a haphazard quota b a s i s so t h a t the m a r g i n a l f r e q u e n c i e s o f the c a t e g o r i e s of any independent v a r i a b l e would be r o u g h l y e q u a l . T h i s even d i s t r i b u t i o n was t o make l a t e r s t a t i s t i c a l measures o f a s s o c i a t i o n more s u i t a b l e t o the s m a l l sample. E f f o r t was made to apply t h i s to o n l y a few o f the independent v a r i a b l e s (REGION, REMOTNES, EMPLOYMT), where f o r example, the number o f f i r m s from each r e g i o n was to be r o u g h l y e q u a l . Given l i m i t e d r e s o u r c e s and d i f f i c u l t c o n d i t i o n s , t h i s form of quota sampling was not s u c c e s s f u l l y a p p l i e d and many independent v a r i a b l e s t h e r e f o r e have uneven m a r g i n a l d i s t r i b u t i o n s (see Appendix A), The term "sampling e r r o r " was used t o d e s c r i b e the s i t u a t i o n s where i n a d v e r t e n t a s s o c i a t i o n s between independent v a r i a b l e s appeared because o f sampling; f o r example, i f a l l l a r g e f i r m s came from one r e g i o n . The i n f l u e n c e o f each v a r i a b l e can not be s e p a r a t e d i n o t h e r a s s o c i a t i o n s because o f the smallness o f the sample. F u r t h e r , d a t a c o l l e c t e d from any quota sampling frame should not be employed to make i n f e r e n c e s r e g a r d i n g the a c t u a l frequency d i s t r i b u t i o n s o f the independent v a r i a b l e s i n the u n i v e r s e p o p u l a t i o n , because these d i s t r i b u t i o n s were s e l e c t e d at the sampling s t a g e . (In proper quota sampling, m a r g i n a l f r e q u e n c i e s o f the sample are made eq u a l to the m a r g i n a l f r e q u e n c i e s o f the u n i v e r s e p o p u l a t i o n , so t h e r e data must be a v a i l a b l e from o t h e r sources.) 10 Paraphrased comments taken from r e p o r t o f I n t e r v i e w #15. 11 Paraphrased comments taken from r e p o r t o f I n t e r v i e w #34. 12 Paraphrased comments taken from r e p o r t o f I n t e r v i e w #13. 13 Paraphrased comments taken from r e p o r t o f I n t e r v i e w #43. ^ P a r a p h r a s e d comments taken from r e p o r t o f I n t e r v i e w #11. 15 ^Paraphrased comments taken from r e p o r t o f I n t e r v i e w #51. 16 Paraphrased comments taken from r e p o r t o f I n t e r v i e w #49. 17 'These persons p o s s i b l y were dubious t h a t a p p r o a c h i n g the i n s t i t u t i o n would be o f any u s e . The r e p u t a t i o n o f IDB amongst the p r i n c i p a l s o f f o r e s t companies who were surveyed seemed to have been t h a t the i n s t i t u t i o n had f a i r l y h i g h standards f o r g r a n t i n g l o a n s . 101 18 Paraphrased comments taken from report of Interview #4-7. IQ ^Paraphrased comments taken from report of Interview #50. on Paraphrased comments taken from report of Interview #30. 102 Chapter 5 SUMMARY The purpose of the t h e s i s was to f i n d out whether there a r e s p a t i a l v a r i a t i o n s i n the a v a i l a b i l i t y o f b u s i n e s s expansion l o a n s from f i n a n c i a l i n s t i t u t i o n s . The r e l a t i o n s h i p between f i n a n c e and a c c e s s i b i l i t y , i f v a l i d , would h e l p t o e x p l a i n d i f f e r i n g r e g i o n a l growth p a t t e r n s . Chapter One i n t r o d u c e d the problem i n g e n e r a l terms, and p l a c e d the study i n the context o f economic development l i t e r a t u r e . R e g i o n a l economists have debated the e f f e c t s o f space on f i n a n c e , but the l i t e r a t u r e reviewed mostly i n v o l v e d use o f d e d u c t i v e c o n s t r u c t s and o p i n i o n s to r e s o l v e the i s s u e , r a t h e r than f i e l d s tudy. A c c o r d i n g l y , the t h e s i s was designed to b r i n g as much f i e l d i n f o r m a t i o n as p o s s i b l e to bear on the t o p i c . The f i n a n c i a l system i s so p e r v a s i v e i n terms of p a r t i c i p a n t s and f u n c t i o n s t h a t a n a l y s i s had to f o c u s on a s m a l l p a r t o f i t . F i n a n c i a l i n t e r m e d i a r i e s such as banks a c h i e v e e f f i c i e n c y i n c o l l e c t i n g s a v i n g s and a l l o c a t i n g these funds amongst h i g h e s t and b e s t uses o f borrowers. The p r o f i t i n c e n t i v e encourages p r i v a t e f i n a n c i a l i n s t i t u t i o n s to f u l l y d i spense t h e i r funds, to l e n d a t c o m p e t i t i v e r a t e s e n s u r i n g a f a i r r e t u r n , and to a v o i d l o s s e s on poor i n v e s t m e n t s . Because o f t h e i r 103 importance in the flow of funds, the lending policies and the loan officers of financial intermediaries ultimately "bear heavy responsibility for the forms in which economic growth takes place. Governments closely regulate the finance industry. They also direct additional funds into publicly-owned lending institutions to eliminate credit gaps for borrowers not adequately served by private inter-mediaries. The thesis was concerned only with public and private lending institutions, and the flows of funds into business through brokerage institutions or private investment of savings were excluded from the terms of reference. Lending institutions have market areas from which customers are drawn. The author theorized that two sets of forces result in the market area phenomenonJ f i r s t l y , a friction of distance affects the loan demand of borrowers, particularly smaller firms, and constrains their credit search to the most accessible institutions; secondly, distance affects the decision-making ability of the institution on whether to supply any loan requested. The distribution of financial institutions in the system of central places is uneven, with less of a range and fewer of each type of institution in successively smaller places. Consequently, i t was felt that economic activities further from metropolitan areas would be more likely to experience slow growth due to insufficient capital. Therefore, a general model was formulated which could be evaluated by field information. 104 Chapter Two fleshed out the simple model, and introduced various qualifying relationships which could also affect business lending. These relationships were abstracted from the literature or discussions with people experienced with finance. Not much interest in the Canadian financial system had previously been expressed by geographers. Exceptions included Kerr, 1 who had viewed the financial industry as a component of urban growth processes, but was mostly concerned with the primary (head-office) functions of financial districts in metropolitan centers. Similarly, Code had studied longitudinal trends in the spatial evolution of high-level decision-making, in terms of broad underlying factors as the need for financial p intelligence, and the communications technology. Code's work was the f i r s t substantive effort to describe the geography of finance in Canada, and was the fi r s t to point out that information and information transfer mechanisms are crucial factors in the effect of space on the supply of funds. The author disagreed with Code primarily with respect to emphasis on the difficulty of collecting relevant information on borrowing businesses, and i t was felt that Code over-simplified the task of collecting on-site information. Prom interviews and published descriptions of the internal administration of lending institutions, other relationships were inferred which could explain why a businessman went to an institution other than the most 105 accessible one. Prom the answers to questions on these factors, the relative importance of distance to the demand for finance could be evaluated. The considerations included knowledge and previous experience, lending on weight of character, loyalty to particular institutions or individuals, and competition between institutions. Chapter Three explains the methods of data collection. Basically, interviews were conducted of a sample of about 50 principals of smaller forest industry companies. The sample was collected over wide regions of the province. The field information was recorded on standard questionnaires and separate interview report sheets. Chapter Pour presents the findings of the field survey. In the f i r s t section, an explanation is given of the quantitative methods for analyzing the questionnaires. Statistical evaluation was not possible because of the large number of variables and the limited sample size. Although the results were not statistically significant, interesting patterns emerged. There was some evidence of a friction of distance affecting demand for bank loans, and some evidence that there was a friction of distance of supply as well. Por example, businessmen further from chartered banks were more prone to switch banks for better deals, they tended to know more about higher cost alternatives (finance companies), and also tended to approach finance companies for loans more often. In addition, they tended to finance equipment 106 through dealers more often and they also tended to use contractors more often than firms who were less remote from banks. . While distance is a factor, i t is evidently not of primary importance judging from the reasons found for not patronizing the most accessible bank branch. In the final analysis, a businessman is interested in getting the capital he requires, and to achieve this result distances the breadth of the province were travelled by borrowers (and lenders) to close a loan. Noteably though, most of the longer distances involved aggressive lending institutions. Time and again i t was found that the most important factor of a l l was whether a credit officer was competent in evaluating the forest industry. Knowledgeable loans officers are apparently sought out over considerable distances for their interpretative and decision-making sk i l l s . The Industrial Development Bank apparently was not affected by distance. No significant tendency for businessmens 1 demands for IDB loans to vary with distance was perceived, nor a tendency for the supply of loans to have spatial variations. The institution was active in regions avoided by private institutions and although few investments were made during the study period, a number of respondents reported past loans from IDB. Insofar as elimination of spatial credit gaps is concerned, the field survey found no criticism of IDB's effectiveness. 107 However, a number o f u n s o l i c i t e d complaints were r e c e i v e d r e g a r d i n g IDB's w i l l i n g n e s s to e i t h e r undertake r i s k , not i n t e r f e r e w i t h management, or to p r o c e s s a p p l i c a t i o n s w i t h i n a r e a s o n a b l e time. The a u t h o r has no b a s i s f o r s p e c u l a t i n g on the v a l i d i t y of t h e s e complaints, but the c r i t i c i s m d i d I n d i c a t e a gap between performance and what businessmen had expected. Roynat L t d . i s a p r i v a t e t e r m - l e n d i n g i n s t i t u t i o n i n c l u d e d i n the study to a s c e r t a i n how w e l l an i n s t i t u t i o n w i t h l i m i t e d a ccess ( o n l y two branch o f f i c e s ) would overcome e f f e c t s o f d i s t a n c e on l e n d i n g . Demand f o r Roynat l o a n s v a r i e d w i t h a c c e s s i b i l i t y , i t was found. The e f f e c t o f d i s t a n c e on supply o f Roynat Loans could not be e v a l u a t e d . The i n s t i t u t i o n seemed to evaluate;,investment p r o p o s a l s without d e l a y and had made a number o f w i d e l y d i s t r i b u t e d investments i n the f o r e s t i n d u s t r y . G e n e r a l l y , the r e s u l t s supported the h y p o t h e s i s t h a t businessmen would tend to u t i l i z e the most a c c e s s i b l e i n s t i t u t i o n s . Yet, r a t h e r than a c o m p e l l i n g f o r c e , a c c e s s i b i l i t y was o n l y a l i g h t c o n s t r a i n t . Many businessmen w i l l i n g l y d ecided to absorb the h i g h e r c o s t s and e f f o r t s o f l o o k i n g f u r t h e r a f i e l d f o r adequate c a p i t a l . The author had h y p o t h e s i z e d t h a t f i n a n c i a l i n s t i t -u t i o n s would be a d v e r s e l y a f f e c t e d by d i s t a n c e i n t h e i r l e n d i n g o p e r a t i o n s , s i n c e they r e q u i r e i n f o r m a t i o n to reduce the u n c e r t a i n t y of l o a n repayment. The r e s u l t s d i d not support t h i s h y p o t h e s i s to a s i g n i f i c a n t e x t e n t . One f a c t o r which seemed to o v e r - r i d e a c c e s s i b i l i t y was 108 whether loans officers were competent and able to make decisions even when circumstances were unusual or complex. A l l of the evidence from respondents suggested that . i f the individual loans officer recognized key factors regarding forest industry success, distance did not unduly hinder a loan appraisal, competence was a very personnel-specific factor which a l l but ruled out friction of distance in lending, provided that the capable loans officer remained in the general region of the borrowing company. Although outlying firms were generally smaller, acess to financial institutions was not a convincing explanation of variation in economic growth. Rather than absence of growth, the study found that more inaccessible firms had different patterns of capital financing. Por example, more reliance was placed upon contractors to provide capital equipment, finance was extended through the industry and public agencies or institutions such as IDB, credit unions and the federal Department of Regional Economic Expansion were more involved. In the absence of the public institutions, more significant variations in regional economic growth would have been found. The British Columbia forest industry has under-gone major structural changes in the past decade. Although the study was conducted during a relative upswing when domestic and foreign markets were strong, there was not the potential for rapid expansion which typified preceding years. Many small firms had disappeared, and their 109 place taken by large well-financed corporations. It would have been interesting to study patterns of forest industry finance prior to the early 1960fs, while there were s t i l l many small firms struggling to grow larger. The author can see value in further research, particularly historical research perhaps using as-primary data sources retired principals of small forest industry companies. Another aspect which could bear further study are channels of communication. The present study relied upon distance in the sense of highway mileage, which actually only poorly measured the concept of ease of information transfer. In addition, over 90 per cent of the sampled firms were within 25 miles of a branch of a chartered bank, , The data collected has limitations with respect to the actual inaccessibility of the sample and different results might have been obtained i f more off-highway samples were obtained. The research suggested that competence of loans personnel^was more important than accessibility. Therefore, any future research should, fi r s t l y , measure competence; and secondly, trace the constantly shifting locations of key personnel. If certain locations seldom had competent personnel while others always did, there may be spatial stability in financing patterns over time. The conclusions of the present study may not apply for a l l industrial sectors or regions of Canada. It is" likely that different results would be obtained in other countries with less developed systems of financial institutions, particularly those which are government-sponsored . REFERENCES Donald Kerr, "Some Aspects of the Geography of Finance in Canada," Readings in Canadian Geography, ed. Robert M. Irving (Toronto: Holt, Rinehart and Winston, 1968), pp. 187-201, 2William R. Code, "The Spatial Dynamics of Financial Intermediaries: An Interpretation of the Distribution of Financial Decision-Making in Canada" (unpublished Doctoral dissertation, University of California, Berkeley, 1971) 112 BIBLIOGRAPHY 1. Economic Development. Forest Industry ABC-British Columbia Lumber Trade Directory and Yearbook. Vancouver: Progress Publishing Co. (1958) Ltd., 1970. Berry, Brian J. L., Geography of Market Centers and Retail Distribution. Englewood Cliffs': Prentice-Hall, 1967" Brewis, T. N. (ed.). Growth and the Canadian Economy. Toronto: McClelland and Stewart, 1968. . 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A P P E N D I X A L I S T I N G OP V A R I A B L E & CATEGORY N A M E S , SHOWING M A R G I N A L F R E Q U E N C I E S 117 Questionnaire Variable No. #,..cr-eases Variable/ Category Name (short) Extended Label 1 43 TYPORGN GENERAL TYPE OP BUSINESS 5 ORGANIZATION 3 Prop' or Proprietorship or part-Partner nership 35 Closehld Corporation, l e s s than corp'n 10 shareholders 5 Wideheld Corporation, more than corp 'n 10 shareholders 2 43 CORPAFLN AFFILIATIONS WITH OTHER 6 COMPANIES 23 Independent No a f f i l i a t i o n s 10 Has subsid- Has at least one subsid-i a r y i a r y company 8 i s a subsid- As stated. iary 2 Both of Both i s a subsidiary and preced'g has i t s own 3 43 EMPLOYMT SCALE OF PEAK EMPLOYMENT 7 J 4 0- 25 As stated. 15 26-75 As stated. V" §' 76-150 As stated. 7 151-300 As stated. 5 301-500 As stated. 3 over 500 As stated. 4 43 ' PRELDIVN WHETHER FIRM CONSISTS OF .8 ONE OR MORE DIVISIONS 27 More than As stated. one 16 Only one As stated. div'n 4 43 NODIVNS NUMBER OF DIVISIONS • 4 27 INTEGRTN INTEGRATION OF MULTIPLE 11 DIVISION FIRMS 12 V e r t i c a l D i v i s i o n s were v e r t i c a l l y -integrated 13 Horizontal D i v i s i o n s were horizon-t a l l y - i n t e g r a t e d 2 Both Both of above •These questions could not be included in the quant i t a t i v e a n a l y s i s , hence they have no variable number. APPENDIX.A: (continued) 118 Q u e s t i o n n a i r e V a r i a b l e No. # o f Cases V a r i a b l e / Category Name ( s h o r t ) Extended L a b e l 5 43 I SITEHQ RELATIVE LOCATION OP 9 COMPANY HEAD OFFICE 27 Near prod'tn O f f i c e c l o s e t o pr o d -u c t i o n s i t e 16 Separated f n s O f f i c e s p a t i a l l y removed from prod'tn s i t e 6 43 RESIPRIN RESIDENTIAL LOCATION 10 OP PRINCIPALS 36 V i c i n i t y V i c i n i t y d e f i n e d as w i t h i n commuting d i s -tance 7 Not i n v i c - As s t a t e d . i n i t y 6 7 LOCABSTE LOCATION OF ABSENTEE * PRINCIPALS 7 43 BANKDIST-A ' HIGHWAY MILEAGE TO COM- 1 PANY'S BANK 18 Up to 4 m i l e s As s t a t e d . 18 5-24 m i l e s As s t a t e d . 3 25-60 m i l e s As s t a t e d . 4 over 60 m i l e s As s t a t e d . 8 43 CLOSBANK ARE OTHER BANKS CLOSER? 12 16 Not o p t i m a l Yes, p a t r o n i z e d branch i s n ot c l o s e s t 27 Most a c c e s s - No o t h e r s are c l o s e r i b l e 9 43 CHOICBNK REASONS FOR USING LESS * ACCESSIBLE, BANK, 2 Conven't t o Branch convenient to ex' commuting e x e c u t i v e 6 Long r e l a t i o n R e l a t i o n s h i p o f l o n g s t a n d i n g 9 Large branch Large branch w i t h h i g h e r l e n d i n g l i m i t 2 Good manager Good branch manager 4 Ne a r e s t o f C l o s e s t branch o f the p a t r ' p a t r o n i z e d bank 7 Other reasons Other reasons f o r s e l e c t i o n 119 'APPENDIX A: (co n t i n u e d ) Q u e s t i o n n a i r e V a r i a b l e No. # o f Cases V a r i a b l e / Category Name ( s h o r t ) Extended L a b e l 10 43 20 23 QUALCOMP Yes No HAS A SECOND BANK EVER BEEN APPROACHED As s t a t e d . As s t a t e d . 13 11 20 12 8 BANKCOMP Yes No SIGNIFICANT DIFFERENCES IN THEIR OFFERS? As s t a t e d . As s t a t e d . 14 12 43 41 2 QUALSUBJ Yes No IS SUBJECT QUALIFIED TO ANSWER QUESTIONS? As s t a t e d . As s t a t e d . 14 13 41 32 9 EXPESUBJ Yes No HAS SUBJECT DEALT WITH OTHER MANAGERS? As s t a t e d . As s t a t e d . 16 14 32 21 7 1 3 MANAGERS Used d i f ' t c r i t No d i f f e r -ences No comp. s i t ' n s Monetary change ANY DIFFERENCES IN LOAN CRITERIA? Yes, they used d i f f e r e n t c r i t e r i a No Comparable s i t u a t i o n s c o u l d not be r e c a l l e d S i t u a t i o n s i n v o l v e d d i f f e r e n t u n d e r l y i n g monetary c o n d i t i o n s 17 15 43 7 7 12 11 6 REGION Cranbrook Kelowna P r i n c e George Vancouver V i c t o r i a REGIONAL CENTER CLOSEST TO HEAD OFFICE As s t a t e d . As s t a t e d . As s t a t e d . As s t a t e d . As s t a t e d . 3 16 43 24 13 6 REMOTNES 1- 10 m i l e s 11-100 m i l e s 101-250 m i l e s HIGHWAY MILEAGE TO SPECIFIED CENTER As s t a t e d . As s t a t e d . As s t a t e d . 4 120 APPENDIX A: (continued) Q u e s t i o n n a i r e V a r i a b l e No. # o f Cases V a r i a b l e / Category Name ( s h o r t ) Extended L a b e l 16 43 24 13 6 REMOTNES 1- 10 m i l e s 11-100 m i l e s 101-250 m i l e s HIGHWAY MILEAGE TO SPECIFIED CENTER As s t a t e d . As s t a t e d . As s t a t e d . ' 4 17 43 40 3 Q17L0CFC Yes No AWARE OF LOCATION OF FINANCE COMPANY As s t a t e d . As s t a t e d . 18 17 43 35 8 Q17LITFC Yes No READ LOAN LITERATURE OF FINANCE COMPANY As s t a t e d . As s t a t e d . 19 17 43 35 8 Q17DISPC Yes No DISCUSSED A LOAN WITH FINANCE COMPANY As s t a t e d . As s t a t e d . 20 17 43 27 16 Q17L0CRN Yes No AWARE OF LOCATION OF ANY ROYNAT OFFICE As s t a t e d . As s t a t e d . 21 17 43 23 20 Q17LITRN Yes No READ LOAN LITERATURE OF ROYNAT LTD. As s t a t e d . As s t a t e d . 22 17 43 10 33 Q17DISRN Yes No DISCUSSED A LOAN WITH ROYNAT OFFICERS As s t a t e d . As s t a t e d . 23 17 43 36 1 Q1710IDB Yes No AWARE OF LOCATION OF ANY IDB BRANCH As s t a t e d . As s t a t e d . 24 17 43 36 7 Q17LIIDB Yes No READ LOAN LITERATURE OF IDB As s t a t e d . As s t a t e d . 25 APPENDIX A: (continued) 121 Questionnaire Variable No. # of Cases Variable/ Category Name (short) Extended Label 17 43 Q17DIIDB DISCUSSED A LOAN WITH 26 IDB OFFICERS 34 Yes As stated. 9 No As stated. 17 43 Q17L0CCB AWARE OF LOCATION OF 27 CHARTERED BANK 43 Yes As stated. 0 No As stated. 17 43 Q17LITCB REAL LOAN LITERATURE OF 28 CHARTERED BANK 42 Yes As stated. 1 No As stated. 17 43 Q17DISCB DISCUSSED A LOAN WITH 29 CHARTERED BANK 43 Yes As stated. 0 No As stated. 18 43 EXPNSION ANY EXPANSIONS PLANNED 30 IN LAST TWO YEARS? 36 Yes As stated. 7 No As stated. 19 35 PLANNING REASONS FOR DROPPING * ANY PLANS? 27 None dropped A l l expansion plans carried out 4 Feasibility Doubts of feasibility of project 1 Market Uncertain market 1 Materials Materials supply problem 1 Gov't reg'Ins Government regulations: Fisheries 1 Cost of loan Interest charges too high 19 35 TESTPLAN ANY PLANS TO LEVEL OF 31 PLANNING FINANCE 34 Yes As stated. 1 No As stated. 122 APPENDIX A: (continued) Questionnaire Variable Bo. # of Cases Variable/ Category Name (short) Extended Label 20 34 2 32 GENSORCE | Wholly internal Partly external ORIGINALLY PLANNED SOURCE OF FINANCE No borrowing required Borrowing required 32 21 33 32 1 APPROPIN Yes No WAS A FINANCIAL INSTIT-UTION APPROACHED As stated. As stated. 33 22 32 27 5 CONTACCB Yes No APPROACHED A CHARTERED BANK FOR A LOAN As stated. As stated. 34 22 32 10 22 CONTAIDB Yes No APPROACHED IDB FOR A LOAN? As stated. As stated. 35 22 32 3 29 CO NT A CRN Yes No APPROACHED ROYNAT FOR A LOAN? As stated. As stated. 36 22 32 7 25 CONTACPC Yes No ' APPROACHED A FINANCE COMPANY FOR A LOAN? As stated. As stated. 37 22 32 3 29 CON TAO TH Yes No APPROACHED OTHER SOURCES FOR A LOAN? As stated. As stated. 33 23 27 25 1 1 Q 23 CHBNK Satisfactory Loan.'refused Unsatis. offer RESULTS OF APPROACH TO BANK? Satisfactory loan received As stated. Unsatisfactory loan received 39 23 10 6 1 3 Q 23 IDB 'Satisfactory Loan refused Unsatis. offer RESULTS OF APPROACH TO IDB? As stated. As stated. As stated. 40 APPENDIX A: (continued) 123 Questionnaire Variable No. # of Cases Variable/ Category Name (short) Extended Label 23 3 1 1 1 Q23R0YNT Satisfactory Loan refused Unsatis. offer RESULTS OP APPROACH TO ROYNAT? As stated. As stated. As stated. 41 23 7 2 1 4 Q 23 PIN CO Satisfactory Loan refused Unsatis. offer RESULTS OP APPROACH TO FINANCE COMPANY As stated. As stated. As stated. 42 23 3 2 1 Q230THER Satisfactory Unsatis. offer RESULTS OP APPROACH TO OTHER SOURCE? As stated. As stated. 43 24 6 5 1 REASONS High cost Insufficient REASONS WHY THE LOAN OFFER WAS UNSATISFACTORY High cost of the loan pull amount requested not forthcoming 44 25 5 1 4 ACCPTUNS Yes No DID FIRM ACCEPT THE UNSAT-ISFACTORY OFFER? As stated. As stated. 45 26 2 1 1 PLANCHGE Scaled down Supplemented DID ANY CHANGES IN PLANS RESULT? The project continued on smaller scale The offered amount was supplemented by other funds • 27 4 3 1 POSTPONE Other finance No borrowing WHAT FINALLY RESULTED FROM DIFFICULTY?' Approached another finan-cial institution success-fully Went ahead without borrowed funds 46 28 42 2 40 BONDSHAR Yes No HAS FIRM SOLD BONDS OR SHARES TO THE PUBLIC? As stated. As stated. 47 124 APPENDIX A: (continued) Questionnaire Variable No. # of Cases Variable/ Category Name (short) Extended Label 28 42 CONTRMAT USE OP CONTRACTORS & 48 OWNERSHIP OP RAW MATERIALS 21 Cont.-firm's Contractors prepare raw RM materials owned by the firm 2 Cont- not Contractors prepare raw \ firm 1s materials not owned by the firm 3 Both Both of above 16 No contractors Ownership of materials not stated 28 42 CONTEQUP NATURE OP CONTRACTORS' 49 EQUIPMENT 0 Only pro- Palling, etc. of trees cessing 6 Tran s portat i on Skidding, yarding, loading, trucking or water transport 20 Both Both of above categories 16 No contractors As stated. 28 42 VENDPIN ARE PURCHASES FINANCED 50 THROUGH VENDOR 12 Rarely used As stated. 1 1 -6 Often As stated. 24 Not used As stated. 28 42 LEASED 'DOES FIRM LEASE 51 EQUIPMENT? 14 Rarely lease As stated. 7 Often As stated. 21 Not used As stated. 28 42 MERGERS ANY MERGERS IN FIRM'S 52 HISTORY? 1 Yes As stated. 41 No As stated. APPENDIX B DESCRIPTION OP STATISTICS EMPLOYED IN QUANTITATIVE ANALYSIS 126 The following statistics were a subroutine option of CROSSTABS, given directly in the output together with the contingency table from which the values were calculated. 1. Chi-square- This statistic tests the independence or lack of statistical association between variables, when specified in CROSSTABS, the statistic is presented along with the more useful level of significance (shown as a decimal percentage, e.g. .08). The significance figure indicates the probability of having a distribution as different from statistical independence by chance alone as the observed distribution. The data upon which i t is proposed to use the chi-square statistic must f u l f i l l certain requirements: a. The total number of observations in the contingency table must equal the number of cases in the sample, and cases roust be independent. One may not, for example, let one case count as one observation in more than one category of any variable. b. The chi-square test is properly used only i f fewer than 20 per cent of the cells in the contingency table have an expected frequency of less than 5, and no cell has an expected frequency of less than 1. (The expected frequency of any cell equals the product of the corresponding row and column totals, divided by the total number of cases in the contingen cy; table..) \ 127 The subroutine automatically substituted the Fisher's exact t e s t s t a t i s t i c in the case of 2 x 2 tables where the number of cases was l e s s than 21. In a l l other 2 x 2 tables, yate's corrected chi-square was employed whenever necessary. The correction consists of e i t h e r adding or subtracting 0.5 i n each c e l l before computing chi-square, and i s used when the expected values of one or more c e l l s are too low. The correction can be applied to tables l a r g e r than 2 x 2 only i f not more than 20 per cent of the expected c e l l frequencies are 5 or l e s s , as was s t i p u l a t e d above. F i n a l l y , because chi-square measures test f o r lack of a s s o c i a t i o n , but do not i n d i c a t e the degree of association, i t was desirable to also compute another s t a t i s t i c a l measure which would do so. 2. Cramer's V, p h i - phi i s used in the case of 2 x 2 contingency tables to correct chi-square f o r the f a c t that i t s value i s proportional to the t o t a l number of cases. Phi ranges in value from 0, where there i s no a s s o c i a t i o n , to 1, when perfect association e x i s t s . Cramer's V i s applied to a l l tables greater than 2 x 2 (where phi has no upper bound), and has the same range and i n t e r p r e t a t i o n of values as p h i . These measures s a t i s f y the need fo r a s t a t i s t i c i n d i c a t i n g the strength of the a s s o c i a t i o n s . APPENDIX C LETTER OP TRANSMITTAL T H E U N I V E R S I T Y O F B R I T I S H C O L U M B I A 129 V A N C O U V E R 8, C A N A D A D E P A R T M E N T O F G E O G R A P H Y Dear Sir: Your co-operation is needed for a student project. An interview is sought with a company representative who bears responsibility in the area of financial management and has represented the firm in contacts with financial institutions. Research is being conducted on the interaction of a wide sample of forest industry companies with various financial institutions. The point -of-view is to search for relationships between physical accessibility and differences in financing experiences. The study is the subject of a Master of Arts thesis in economic geography being undertaken at the University of British Columbia. While the questions that w i l l be asked w i l l not require any research, such as into financial records, the questions do c a l l for private opinions and recollections of company experiences that are confidential. Consider-able planning has been undertaken to ensure that the identity of respondent companies w i l l not be discernable in the interview record nor the f i n a l thesis document. In keeping with a policy of closely inspecting a l l public surveys to be conducted under i t s auspices, the university administration has assessed the preparation of this study, and unqualified approval has been given by President Gage's office. Supporting funds and thesis guidance are being provided by the Depart-ment of Geography. Thesis advisors are; I am very hopeful that you w i l l see f i t to support this project and be able to spare a half-hour for the interview. I w i l l be in your area the week of and w i l l c a l l for an appointment during that time. Dr. Robert N. North Department of Geography U.B.C. Vancouver Dr. Kenneth G. Denike Department of Geography U.B.C. Vancouver Yours sincerely, Allan R. Newell, BA APPENDIX D QUESTIONNAIRE 131 STUDY OF FOREST INDUSTRY EXPERIENCES WITH FINANCIAL INSTITUTIONS PRIVATE AND CONFIDENTIAL A l l respondents should begin with Question 1 and complete the questions i n numerical order, u n t i l directed to omit c e r t a i n questions. Place n t i c k (l^) i n the square next to the appropriate answer, or write in Rn answer that i s not among the offered a l t e r n a t i v e s . In any written answer, please do not specify by name any i n d i v i d u a l person, chartered bank, or forest industry company. Section 1: CHARACTERISTICS OF THE FIRM 1. What i s the general type of business organization of your firm? P~| sole proprietorship j j partnership | [ corporation, with: j j l e s s than 10 shareholders [ | more than 10 shareholders 2. What a f f i l i a t i o n s does the firm hive with other companies? [ ] none, the firm i s independent | { the firm has one or more subsidiary company | | the fir m i s the subsidiary of another company 3- What i s the general scale of company employment during months of pe:jk operation? (# of f u l l - t i m e employees) • .0 -25 • 76 -150 • 301 -500 • 26 -75 • 151 -300 Q over 500 4. Does the firm maintain more than one permanently located d i v i s i o n ? (A d i v i s i o n i s defined to ee a production operation which functions as a u n i t , but which i s not incorporated separately.) • «° [ [ yes, please specify how many d i v i s i o n s | ~"] , and whether: Q d i v i s i o n s are v e r t i c a l l y - i n t e g r a t e d (products flow between theno for processing) j j d i v i s i o n s are h o r i z o n t a l l y - i n t e g r a t e d (no product flow between d i v i s i o n s ) 5. Is the head-office l o c a t i o n shared by any major production operation of the firm? • no • 7 " 6. Wh.a t i s the general r e s i d e n t i a l loc? tion of the p r i n c i p a l s * ? f i residence i n v i c i n i t y of head-office residence elsewhere I f resident i n : Canada. .specify c i t y USA •specify sta te other.. . specify country * D e f i n i t i o n of p r i n c i p a l s : i ) small and medium companies- owners and key f i n a n c i a l employees i i ) l a r g e r , public companies- director of finance, other executive o f f i c e r s and d i r e c t o r s The above question w i l l be used to evaluate whether some firms in remote locations are i n f a c t supported by p r i n c i p a l s who maintain high personal access with larger urban centers, thus giving their firms greater access to f i n a n c i a l i n s t i t u t i o n s th^n would otherwise be the ca 1 3 2 Section 2 : EXPERIENCES WITH CHARTERED BANKS 7. Could you estimate the distance between the company's headquarters and the branch of the chartered bank which handles the company's banking a f f a i r s ? | | miles by highway (rounded o f f to the nearest 5 miles) 8. Are there other branches of any chartered bank located appreciably closer to the firm than the branch s p e c i f i e d above? • no (PLEASE OKIT QUESTION 9) Q yes (PLEASE ANSWER QUESTION 9) 9. What are the reasons f o r using the chosen branch, given the a l t e r n a t i v e chartered bank branches which are closer? (indicate a l l applicable answers) | | the branch being patronized i s quite convenient, considering normal business t r a v e l routes of the executives of the firm | | the banking r e l a t i o n s h i p of the firm was established many years ago and i t i s not worthwhile to sever t h i s r e l a t i o n s h i p i n order to gain a more convenient banking point | | the chosen branch i s one of the largest branches i n the area and the branch manager has considerable authority i n h i s organization | | the manager of the patronized bank i s an active and capable man to deal with, compared to other bank managers i n the area or that one has known | | a standing p o l i c y of the firm i s to deal with a p a r t i c u l a r chartered bank and the branch currently patronized i s the closest branch of t h e i r organization | | other reasons (please s p e c i f y ) : 1 0 . Has your firm, to your knowledge, ever approached a second bank with the same loan proposal a f t e r r e c e i v i n g an unsatisfactory loan o f f e r from the firm's usual bank? • no (PLEASE OMIT QUESTION 11) • yes (PLEASE ANSWER QUESTION 11) 11. Where i t was possible to consider loan o f f e r s from two bank organizations f o r the same lending s i t u a t i o n , were there s i g n i f i c a n t differences i n t h e i r o f f e r s , considering such aspects as term, maximum p r i n c i p a l , requirea security, i n t e r e s t charges, or other factors? | | no, differences between o f f e r s were not s i g n i f i c a n t | | yes, the o f f e r s were c l e a r l y d i f f e r e n t 12' . Are you one of the persons who are q u a l i f i e d to represent your firm i n negotiations f o r business loans from banks or other f i n a n c i a l i n s t i t u t i o n s ? Q no (PLEASE PROCEED TO QUESTION 1 5 , OMITTING INTERVENING QUESTIONS) • yes (PLEASE ANSWER QUESTION 13 ) 1 3. Have you represented the f i r m i n business loan negotiations with a i f f e r e n t branch managers of the same banking organization? • no (PLEASE OKIT QUESTION 14) • yes (PLEASE ANSWER QUESTION 14) 14. In your opinion, were there noticable differences i n the way these managers viewed lending s i t u a t i o n s , such that one man would grant the loan under a c e r t a i n set of conditions that would not have been acceptable to another manager? | | yes, such differences were noticed I | no, any differences between managers' lending c r i t e r i a were not that pronounced I I no opinion, can not r e c a l l s i m i l a r loan s i t u a t i o n s that were put forward to d i f f e r e n t managers I | no opinion, comparable loan proposals were made to a i f f e r e n t managers, but not at times when the external monetary conditions (which a f f e c t tightness of c r e d i t ) were s i m i l a r 133 Section 3: REGIONAL AREA AND REMOTENESS 15. Specify the regional center which i s closest to the firm's headquarters: I I Cranbrook Q Kelowna Q Vancouver Q Grande P r a i r i e Q Prince George Q V i c t o r i a 16 . What i s the highway mileage from company headquarters to the selected regional center? I j miles (please round o f f to the nearest 10 miles, f o r s e c u r i t y - o f - i d e n t i t y purposes) NOTE: Because of the p o s s i b i l i t y that a too small number of firms may f a l l into each distance c l a s s i f i c a t i o n , detailed data from the above question (16) may not be published. However, the information i s quite e s s e n t i a l f o r a s p a t i a l analysis of the returns, and a general d e s c r i p t i o n i n the summary w i l l point out any d i f f e r e n c e s i n financing patterns between the d i f f e r e n t regions. Section 4; ATTENTION GIVEN TO FINANCIAL INSTITUTIONS 17 . The respondent i s requested to indicate h i s general knowledge of the following i n s t i t u t i o n s which grant medium-term loans. While the question i s not meant to require any research, the respondent i s urged to include knowledge that he has himself or knows to be possessed by h i s executive colleagues i n the f i r m . I n s t i t u t i o n Degree of Knowledge Are aware of the l o c - Have read t h e i r l i t - Have discussed the a t i o n of an o f f i c e or ature, pamphlets top i c of term loans a representative, from regarding general with an o f f i c e r of the advertisements, etc. facts on loan p o l i c y i n s t i t u t i o n and know and conditions. what to expect. Yes No Yes No Yes No any Commercial Finance Company • • • • • • Roynat Ltd. • • • • • • I n d u s t r i a l Development Bank • • • • • • any Chartered Bank • • • • • • Section 5 : PLANNING FOR COMPANY EXPANSION 18. Did the firm formulate any plans f o r expansion of f i x e d assets during the past two years? (For the purposes of t h i s questionnaire, consider expansion of f i x e d assets to include: major additions of new fixed assets to e x i s t i n g plant and equipment; and replacement purchases f o r obsolescent or f u l l y depreciated assets, i f the replacement has a s i g n i f i c a n t l y higher capacity.) • no (PLEASE PROCEED TO QUESTION 28, OMITTING INTERVENING QUESTIONS) • yes (PLEASE CONTINUE, WITH QUESTION 19) 19. To what l e v e l were the expansion plans of the previous two years a c t u a l l y carried? Q some plans were dropped before reaching the stage of seeking financing, because of: (specify reasons with respect to each major set of plans dropped) Plan number 1 2 3 [ ] [ ] [ ] doubts of the f e a s i b i l i t y of the project Q CU doubts that finance would be a v a i l a b l e Q Q LZ] other f a c t o r s (please indicate below) Plan #1: Plan # 2: Plan f 3: I j at l e a s t one plan was taken to the stage of a c t i v e consideration and p o l l i n g of some of the possible i n t e r n a l and external sources of financing 134 NOTE: I f no plans reached the l e v e l of planning finances (Question 19 , l a s t part), PLEASE PROCEED TO QUESTION 28, OMITTING INTERVENING QUESTIONS. Otherwise, begin the questions below, and choose answers that apply to the l a t e s t set of plans f o r which financing was planned. The format of the next set of questions has been designed to cope with the v a r i e t y of financing experiences of a l l respondents, but only with respect to a si n g l e set of expansion plans f o r each respondent. In oraer to prevent confusion, the respondent i s requested to be s t r i c t l y conscientious i n r e s t r i c t i n g h i s answers to those which apply only to the l a t e s t set of plans f o r which the d e t a i l s of financing were at l e a s t attempted to be arranged. Section 6: GENERAL FINANCING SOURCE 20. What general source of financing had been o r i g i n a l l y planned? • wholly i n t e r n a l financing, through reserves of company earnings, borrowing from parent ££mK!?£!,™ J ^ r t h e r Personal investment by the p r i n c i p a l s of the company (PLEASE PROCEED TO QUESTION 28, OMITTING INTERVENING QUESTIONS) 1—1 £?;S?S?il!s^w?s t 0 b e a t l e a s t i n P a r t supplied from external sources (PLEASE CONTINUE, WITH QUESTION tlx) 2 1 . Did the firm ever approach a f i n a n c i a l i n s t i t u t i o n f o r a loan i n order to carry out the plan? Q no (please specify the general nature of the a l t e r n a t i v e ) : (now, PLEASE PROCEED TO QUESTION 28, OMITTING ALL INTERVENING QUESTIONS) yes (PLEASE CONTINUE, WITH QUESTION 22) Section 7: DIRECT CONTACT WITH FINANCIAL INSTITUTIONS 22. Please ind i c a t e a l l f i n a n c i a l i n s t i t u t i o n s which were approached f o r a loan regarding the l a s t set of plans f o r which external financing was sought. (The survey has in t e r e s t i n any i n s t i t -ution which was contacted, whether or not the loan proposal was f u l l y explained to the loan o f f i c e r s , and regardless of whether or not a loan was l a t e r taken out from them.) 23 any Canadian Chartered Bank In d u s t r i a l Development Bank Roynat Ltd. any Commercial Finance Company Other sources of term loans • • • • • . In each case what was the outcome of the approach to th e i n s t i t u t i o n ? any Canadian Chartered Bank In d u s t r i a l Development Bank Roynat Ltd. any Commercial Finance Company Other sources of term loans • • • • • • • • • • • • • • • (were approached) A s a t i s f a c t o r y loan resulted & the plan proceeded without modifications. (PLEASE PRO-CEED TO QUESTION 28 NOW) The i n s t i t u t i o n did not want to make the loan. (PLEASE PROCEED TO QUESTION 27 NOW) The loan o f f e r of the i n s t i -t u t i o n was somewhat unsatis-f a c t o r y . (PLEASE CONTINUE, WITH QUESTION" 24) 24. As indicated by the preceding question, an approach to an i n s t i t u t i o n resulted i n a loan o f f e r that was unsatisfactory to your f i r m . The reasons f o r the d i s s a t i s f a c t i o n were: I I high cost of the loan I I some s a c r i f i c e of managerial control would have been involved I I the f u l l amount requested would not be forthcoming I I loan c o l l a t e r a l or security required was somewhat excessive I I other reasons (please s p e c i f y ) : 135 2 5 - Did your f i r m accept the loan o f f e r , although i t was not completely s a t i s f a c t o r y ? • no (PLEASE PROCEED TO QUESTION 27) . yes (PLEASE CONTINUE, WITH QUESTION 26) 26. What changes i n the plan occurred, that were s o l e l y due to the unsatisfactory financing arrangements? | [ no modifications to the o r i g i n a l c a p i t a l - a l l o c a t i o n planning were necessary | | o r i g i n a l expenditure plans were scaled down | | o r i g i n a l scale of plans was kept, but economies were effected on the actual expenditures, by s u b s t i t u t i o n of cheaper u n i t s , etc | | the offered amount was taken, and the plans were carried out by combining the amount with some external a l t e r n a t i v e to financing d i r e c t l y through a f i n a n c i a l i n s t i t u t i o n , (for example, by leasing part of the needed equipment) | | o r i g i n a l scale of plans was maintained by taking the offered amount and applying a squeeze on the other i n t e r n a l c a p i t a l allotments of the f i r m / S i n c e t h ( j n > w h a t h a v e b e e n t h e e f f e c t s of subsequent business conditions on the state of f l e x i b i l i t y of the i n t e r n a l c a p i t a l of the firm? | | increased the squeeze | | no change | | a l l e v i a t e d the c a p i t a l squeeze NOTE: ALL RESPONDENTS ANSWERING QUESTION 26 SHOULD OMIT QUESTION 27 27. Given the d i f f i c u l t y i n obtaining external financing, what course of a c t i o n did the f i r m take regarding the plans which were being considered? (choose one option) | | the f i r m approached another f i n a n c i a l i n s t i t u t i o n s u c c e s s f u l l y (as expressed i n Question 23) | | postponed the plan f o r the time being | | a l t e r e d the approach to financing, and went ahead with the expansion plans without any external borrowing from a f i n a n c i a l i n s t i t u t i o n Section 8: ALTERNATIVE MEANS OF EXPANSION 28 . In t h i s f i n a l question, a l l respondents are requested to check-off each of the following features that have been or are now c h a r a c t e r i s t i c of h i s f i r m . The information i s necessary f o r an assessment of the prevalence of a l t e r n a t i v e s to the external financing of expenditure plans d i r e c t l y through a f i n a n c i a l i n s t i t u t i o n . j [ the firm has sold shares or bonds to the general public, investment underwriters, investment firms or others | | your firm has contracted to other firms or i n d i v i d u a l s , a portion, or a l l of the work of supplying raw materials f o r production, where: | | ownership of most or a l l of the raw materials i s already vested i n your firm, previous to the handling of these materials by contractors | | ownership of most or a l l of the raw materials by your firm only a r i s e s a f t e r the materials have been handled by contractors | | some processing of the materials by a contractor i s required \ | transportation of the materials by a contractor i s required | | c a p i t a l goods required f o r production, such as buildings, machinery or equipment; have been financed for'medium-term periods through the vendor of the c a p i t a l goods, rather than by a f i n a n c i a l i n s t i t u t i o n , and t h i s arrangement occurs: | | only r a r e l y ( r e l a t i v e to the other methods of financing preferred by the firm) | | f a i r l y often ( f c r examole, where the firm considers t h i s avenue of financing f o r each major purchase) J [ c a p i t a l goods required for production, such as buildings, machinery or equipment are sometimes leased or rented f o r medium or long-term periods: j | only r a r e l y (compared to purchasing the required goods) | I f a i r l y often (as when the company has a policy of l e a s i n g equipment whenever possible) | j the firm has i n the past merged with another firm that previously operated separately i n the same general industry END OF QUESTIONNAIRE 

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