Bank Market Power and SME Financing Constraints

62 Pages Posted: 20 Jun 2006

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Date Written: June 1, 2006

Abstract

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.

Keywords: Bank market power, SME financing

JEL Classification: G21, D21, D40

Suggested Citation

Carbo-Valverde, Santiago and Udell, Gregory F. and Rodriguez-Fernandez, Francisco, Bank Market Power and SME Financing Constraints (June 1, 2006). EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=910226 or http://dx.doi.org/10.2139/ssrn.910226

Santiago Carbo-Valverde (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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