Bank Market Power and SME Financing Constraints
Bangor Business School
Gregory F. Udell
Indiana University Bloomington - Department of Finance
University of Granada - Department of Economic Theory and History
June 1, 2006
EFA 2006 Zurich Meetings
Some studies find that higher bank concentration is associated with higher credit availability (information hypothesis) while others maintain that credit rationing is higher in less competitive bank markets (market power hypothesis). This study tests these two competing hypotheses by employing for the first time a competition indicator from the Industrial Organization literature - the Lerner index - as an alternative to concentration measures. The results are sensitive to the choice of market power indicators. The Lerner index is found to be the more consistent indicator and exhibit the larger (and positive) marginal effect on the probability that a firm is financially constrained.
Number of Pages in PDF File: 62
Keywords: Bank market power, SME financing
JEL Classification: G21, D21, D40working papers series
Date posted: June 20, 2006
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