Discussion Paper 17

Who’s afraid of big bad banks?  Bank competition, SME, and industry growth

R. Inklaar*, M. Koetter* and F. Noth **

* University of Groningen (RUG), Netherlands
**Goethe University Frankfurt, Germany

 

Abstract

We test how bank market power influences technical change and resource allocation of informationally opaque firms.We use a dataset with approximately 700,000
firm-year observations of German small and medium-sized enterprises (SME) and we identify the effect of bank market power using the dependence on external
finance per industry and the regional demarcation of the German banking market.  Market power generally spurs aggregate SME growth, which indicates that
banks need to realize sufficient margins to generate useful private information.  Both technical change and allocation of resources are positively affected by bank
market power, but market power reduces SME growth in industries that depend heavily on external finance.

 

Full text

Who’s afraid of big bad banks? Bank competition, SME, and industry growth

 

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Judith Harris

 

Birmingham Business School
Edgbaston Park Road
Birmingham B15 2TT

 

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Legal notice

This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Grant Agreement no:244 709

The views expressed in this website are the sole responsibility of the author and do not necessarily reflect the views of the European Commission.

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