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Bank market power and SME finance: Firm-bank evidence from European countries

Xiaodong Wang, Liang Han and Xing Huang

Journal of International Financial Markets, Institutions and Money, 2020, vol. 64, issue C

Abstract: Using unique matched data on SME-bank relationships from 19 European countries, we examine the effects of bank-level market power on SME finance. We show novel evidence that bank market power at disaggregate level reduces SMEs’ access to bank finance and worsens their credit constraints. Whilst, banking market concentration improves credit supply to SMEs. The unfavourable market power effect is stronger for SMEs who are more informationally opaque, riskier and more dependent on external finance. We also show supporting evidence on Information-based Hypothesis where with greater market power, banks are more likely to engage in relationship lending.

Keywords: SME; Bank relationship; Market power; Financing constraint (search for similar items in EconPapers)
JEL-codes: G10 G21 M21 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:64:y:2020:i:c:s1042443119300770

DOI: 10.1016/j.intfin.2019.101162

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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