The Effects of Bank Market Power in Short-Term and Long-Term Firm Credit Availability and Investment

Abstract

This article investigates the short-term and long-term effects of bank market power on the availability of credit for companies, and on firm investment. Our results suggest that an increase in bank market power reduces firms’ credit availability and investment in the short-term, but firm investment recovers in the long-term. The economic significance of these relationships is found to be larger for SMEs than for other (larger) firms.

Keywords: Bank loans, bank market power, Euler equation, firm investment rate, risk premium

JEL Classification: G21; G31; D40