Product market competition and access to credit

Vittoria Cerasi, Alessandro Fedele and Raffaele Miniaci

Small Business Economics, 2017, vol. 49, issue 2, No 3, 295-318

Abstract: Abstract In this paper, we unveil a disregarded benefit of product market competition for firms. We introduce the probability of bankruptcy in a simple model where firms compete à la Cournot and apply for collateralized bank loans to undertake productive investments. We show that the number of competitors and the existence of outsiders willing to acquire the productive assets of distressed incumbents affect the equilibrium share of investment financed by bank credit. Using a sample of Italian manufacturing firms, mostly small- and medium-sized enterprises (SMEs), we found evidence showing that the degree of product market competition is positively correlated with the share of investment financed by bank credit only when outsiders are absent.

Keywords: Product market competition; Collateralised bank loans; Resale of productive assets; Small- and medium-sized enterprises (SMEs) (search for similar items in EconPapers)
JEL-codes: D22 G33 L13 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11187-017-9838-x

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