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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