Local product market competition and bank loans

Iftekhar Hasan, Yi Shen and Xiaojing Yuan

Journal of Corporate Finance, 2021, vol. 70, issue C

Abstract: We investigate the influences of local product market competition on the cost of private debt. Our evidence suggests that the cost of bank loans is significantly higher for firms headquartered in states with greater local product market competition measured by the Herfindahl-Hirschman Index for resident industries. To establish causality, we examine the recognition of the Inevitable Disclosure Doctrine and firm relocations to identify exogenous shocks to local product market competition. We find that the cost of bank loans is lower for firms facing less intense local product market competition after the adoption of IDD and higher for firms relocated to states with more competitive product markets. The results imply that banks value the characteristics of a firm's local product market when approving loan contracts.

Keywords: Local product market competition; The cost of private debt; Bank loans (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:70:y:2021:i:c:s0929119921001760

DOI: 10.1016/j.jcorpfin.2021.102054

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