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Bank competition and the cost of debt: the role of state ownership and firm size

Peisen Liu, Houjian Li and Shoujun Huang

Applied Economics Letters, 2018, vol. 25, issue 13, 951-957

Abstract: The argument on the puzzling relationship between bank competition and the cost of debt remains inconclusive as the effects of state ownership and firm size are intertwined. We find that bank competition is negatively associated with the cost of debt and observe that the negative effect of bank competition is stronger for state-owned enterprises (SOEs) and weaker for large-sized enterprises. Our findings accord with the market power hypothesis. State ownership strengthens the negative impact of bank competition on the cost of debt, but firm size tends to weaken it. SOEs and large-sized enterprises are associated with a lower cost of debt compared to non-SOEs and small- and medium-sized enterprises, respectively.

Date: 2018
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