Bank market power and the intensity of borrower discouragement: analysis of SMEs across developed and developing European countries

Ana Mol-Gómez-Vázquez*, Ginés Hernández-Cánovas, Johanna Koëter-Kant

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper analyzes the effect of bank market power on the financial constraints of small and medium-sized enterprises (SMEs) through the study of borrower discouragement. We use a cross-country sample of 2582 firms in 25 developed and developing European countries. Our results show that the intensity of borrower discouragement decreases with the level of bank market power, and this result is robust to the use of concentration and industrial organization measures of competition. When our model allows for non-monotonic effects, we show that more bank market power might increase borrower discouragement for firms operating in less developed economies and in countries with a high degree of bank market power. These results explain the conflicting evidence provided in previous literature concerning countries with different levels of economic development and bank market power. Our paper sets limits to the continuous concentration process in the European banking market, which may result in more discouraged and financially restricted SMEs.

Original languageEnglish
Pages (from-to)211–225
Number of pages15
JournalSmall Business Economics
Volume53
Issue number1
DOIs
Publication statusPublished - 2019

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Keywords

  • Bank market power
  • Borrower discouragement
  • Financial constraints
  • Small business financing

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