Local Product Market Competition and Bank Loans

63 Pages Posted: 19 Aug 2020 Last revised: 29 Jul 2021

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Yi Shen

Winthrop University - Business Administration

Xiaojing Yuan

affiliation not provided to SSRN

Date Written: August 31, 2016


We investigate the influences of local product market competition on the cost of private debt. Our evidence suggests that the cost of bank loans is significantly higher for firms headquartered in states with greater local product market competition measured by the Herfindahl-Hirschman Index for resident industries. To establish causality, we examine the recognition of the Inevitable Disclosure Doctrine and firm relocations to identify exogenous shocks to local product market competition. We find that the cost of bank loans is lower for firms facing less intense local product market competition after the adoption of IDD and higher for firms relocated to states with more competitive product markets. The results imply that banks value the characteristics of a firm’s local product market when approving loan contracts.

Keywords: local product market competition, the cost of private debt, bank loans

JEL Classification: G21, G30, G32

Suggested Citation

Hasan, Iftekhar and Shen, Yi and Yuan, Xiaojing, Local Product Market Competition and Bank Loans (August 31, 2016). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3654479 or http://dx.doi.org/10.2139/ssrn.3654479

Iftekhar Hasan

Fordham University ( email )

NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006

Yi Shen (Contact Author)

Winthrop University - Business Administration ( email )

304 Thurmond Bldg.
Rock Hill, SC 29773
United States

Xiaojing Yuan

affiliation not provided to SSRN

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