Bank Market Power and Firm Finance: Evidence from Bank and Loan Level Data

30 Pages Posted: 5 Sep 2019

See all articles by Jose E Gomez-Gonzalez

Jose E Gomez-Gonzalez

Banco de la Republica

Cesar Eduardo Tamayo Tobon

Universidad EAFIT

Oscar M. Valencia

Inter-American Development Bank (IDB)

Date Written: August 29, 2019

Abstract

We present new measures of market power for the banking industry in Colombia and estimate their effect on the cost of credit for non-financial firms. Our results suggest that bank competition increased during the 2006-2008 period–even as concentration increased–but decreased thereafter. Using a unique combination of loan, firm and bank-level datasets we are also able to show that banks loosing overall market power–measured by the average price-cost margin–decrease interest rates to small firms, but increase rates to firms with which they have the oldest credit relationships. This suggests (i) the existence of market power that is specific to the bank-firm relationship (i.e., informational lock-in and hold-up problems due to switching costs), and (ii) that size may be capturing other firm attributes such as observable risk, scale effects or implicit collateral.

Keywords: bank competition, market power, Boone, Lerner, Colombia, cost of firm finance, loan-level data

JEL Classification: G21, D22, O16

Suggested Citation

Gomez-Gonzalez, Jose Eduardo and Tamayo Tobon, Cesar Eduardo and Valencia, Oscar M., Bank Market Power and Firm Finance: Evidence from Bank and Loan Level Data (August 29, 2019). Center for Research in Economics and Finance (CIEF), Working Papers, No. 19-11, 2019. Available at SSRN: https://ssrn.com/abstract=3447551 or http://dx.doi.org/10.2139/ssrn.3447551

Jose Eduardo Gomez-Gonzalez (Contact Author)

Banco de la Republica ( email )

Carrera 7 #14-78
Bogota
Colombia

Cesar Eduardo Tamayo Tobon

Universidad EAFIT ( email )

Carrera 49 N° 7 sur – 50
Bogotá, Antioquia 00000
Colombia

Oscar M. Valencia

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
95
PlumX Metrics