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Bank market power, factor reallocation, and aggregate growth

Robert Inklaar, Michael Koetter and Felix Noth

Journal of Financial Stability, 2015, vol. 19, issue C, 31-44

Abstract: Using a unique firm-level sample of approximately 700,000 firm-year observations of German small and medium-sized enterprises (SMEs), this study seeks to identify the effect of bank market power on aggregate growth components. We test for a pre-crisis sample whether bank market power spurs or hinders the reallocation of resources across informationally opaque firms. Identification relies on the dependence on external finance in each industry and the regional demarcation of regional banking markets in Germany. The results show that bank markups spur aggregate SME growth, primarily through technical change and the reallocation of resources. Banks seem to need sufficient markups to generate the necessary private information to allocate financial funds efficiently.

Keywords: Growth decomposition; Reallocation; Banking; Market power (search for similar items in EconPapers)
JEL-codes: E22 G21 O16 O41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:19:y:2015:i:c:p:31-44

DOI: 10.1016/j.jfs.2015.05.004

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