Bank market power and SME finance: firm-bank evidence from European countries

Xiaodong Wang, Liang Han*, Xing Huang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

Using unique matched data on SME-bank relationships from 19 European countries, we examine the effects of bank-level market power on SME finance. We show novel evidence that bank market power at disaggregate level reduces SMEs’ access to bank finance and worsens their credit constraints. Whilst, banking market concentration improves credit supply to SMEs. The unfavourable market power effect is stronger for SMEs who are more informationally opaque, riskier and more dependent on external finance. We also show supporting evidence on Information-based Hypothesis where with greater market power, banks are more likely to engage in relationship lending.

Original languageEnglish
Article number101162
Pages (from-to)1-26
Number of pages26
JournalJournal of International Financial Markets, Institutions and Money
Volume64
Early online date23 Dec 2019
DOIs
Publication statusPublished - 1 Jan 2020

Keywords

  • Bank relationship
  • Financing constraint
  • Market power
  • SME

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