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Credit market structure and bank screening
Author(s) -
Agostino Mariarosaria,
Gagliardi Francesca,
Trivieri Francesco
Publication year - 2010
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2010.06.003
Subject(s) - competition (biology) , market power , monetary economics , debt , business , panel data , economics , probability of default , bond market , financial system , credit risk , finance , econometrics , microeconomics , ecology , biology , monopoly
Based on a large panel of Italian SMEs, this paper focuses on the relationship between firms' default probability and the amount of bank debt they obtain, evaluating whether and to what extent this link is affected by the degree of competition characterizing the local credit market where firms operate. Using a dynamic panel estimator, we find that higher bank competition implies a stronger influence of firms' riskiness on bank financing to SMEs. We provide two plausible interpretations of this finding: one resorting to more accurate screening by more competitive banks; the other alleging lower market power of incumbent banks, which may restrict their willingness to finance riskier firms.