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Bank market power and the intensity of borrower discouragement: analysis of SMEs across developed and developing European countries

Ana Mol-Gómez-Vázquez (), Ginés Hernández-Cánovas () and Johanna Koëter-Kant ()
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Ana Mol-Gómez-Vázquez: Universidad de Almería
Ginés Hernández-Cánovas: Universidad Politécnica de Cartagena
Johanna Koëter-Kant: Vrije Universiteit Amsterdam

Small Business Economics, 2019, vol. 53, issue 1, 211-225

Abstract: Abstract This paper analyzes the effect of bank market power on the financial constraints of small and medium-sized enterprises (SMEs) through the study of borrower discouragement. We use a cross-country sample of 2582 firms in 25 developed and developing European countries. Our results show that the intensity of borrower discouragement decreases with the level of bank market power, and this result is robust to the use of concentration and industrial organization measures of competition. When our model allows for non-monotonic effects, we show that more bank market power might increase borrower discouragement for firms operating in less developed economies and in countries with a high degree of bank market power. These results explain the conflicting evidence provided in previous literature concerning countries with different levels of economic development and bank market power. Our paper sets limits to the continuous concentration process in the European banking market, which may result in more discouraged and financially restricted SMEs.

Keywords: Borrower discouragement; Bank market power; Small business financing; Financial constraints (search for similar items in EconPapers)
JEL-codes: G21 G30 G32 L26 (search for similar items in EconPapers)
Date: 2019
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