Bank Market Structure and Firm Capital Structure in Europe

We provide evidence on the effect of bank market structure on credit availability for firms. We explore the impact of concentration in the banking market on the capital structure of publicly quoted non-financial Western European firms over the period 1997-2003, an era marked by intensive merger activity in the banking sector. The results suggest a role for the market power hypothesis, as opposed to the information- based hypothesis of bank lending. We control for alternative sources of firm financing, the macroeconomic environment and the country composition of the sample. We also analyse the robustness of the results to alternative indicators of bank market structure.