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Does bank market power affect SME financing constraints?

Robert Ryan, Conor O'Toole () and Fergal McCann ()

No 03/RT/14, Research Technical Papers from Central Bank of Ireland

Abstract: This paper examines the extent to which bank market power alleviates or magnifies SME credit constraints using a large panel dataset of more than 118,000 SMEs across 20 European countries over the period 2005-2008. To our knowledge, this is the first study to examine bank market power and SME credit constraints in an international, developed economy setting. More- over, our study is the first to address a number of econometric considerations simultaneously, in particular by controlling for the availability of profitable investment opportunities using a structural Q model of investment. Our results strongly support the market power hypothesis, namely, that increased market power results in increased financing constraints for SMEs. Ad- ditionally, we find that the relationship exhibits heterogeneity across firm size and opacity in a manner that suggests that the true relationship between bank market power and financing constraints might not be fully explained by the existing theory. Finally, we find that the effect of bank market power on financing constraints increases in financial systems that are more bank dependent.

Keywords: Bank Competition; Bank Concentration; Financing Constraints; Tobin's Q; Firmlevel Investment (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 F34 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com, nep-eec and nep-ent
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Related works:
Journal Article: Does bank market power affect SME financing constraints? (2014) Downloads
Working Paper: Does Bank Market Power Affect SME Financing Constraints? (2014) Downloads
Working Paper: Does Bank Market Power Affect SME Financing Constraints? (2013) Downloads
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