Bank Competition and Firm Credit Availability: Firm-Bank Evidence From Europe

Abstract

is paper examines the impact of bank competition on rms' access to credit using a large panel of 900 banks matched to almost 60.000 rms across the euro area over the period 2010-2016. Results provide empirical support for the market power hypothesis whereby low interbank competition worsens rms' credit conditions. We nd that higher bank market power is associated with lower short-term bank credit and higher trade credit for customer rms. Furthermore, high bank market power is especially detrimental for small, low quality and opaque rms, suggesting that lower inter-bank competition exacerbates the nancial constraint of borrowers that are more exposed to information problems. By contrast, we nd limited evidence consistent with the information hypothesis: among rms related to banks with high market power, only those served by small and local cooperatives obtain more bank credit. is nding highlights the relative importance of specialisation, ownership structure and local outreach in favouring credit relationships between borrowers and lenders.

Credit referencing, bank lending methodologies and SME access to finance in Ghana

“…Grandi and Ninou-Bozon (2019) document that there are conflicting theories in the literature regarding the relations between banking competition and credit availability. Citing Dell 'Ariccia and Marquez (2006), Grandi (2019) attribute banks' inability to provide finance to SME firms to the level of competition in the banking sector. Patti and Gobbi and Patti (2007); Berger et al (1998) state categorically that banking competition resulting from bank consolidation is associated with a reduction in lending, especially to SME businesses.…”