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Bank competition, financing obstacles, and access to credit

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Author Info
Beck, Thorsten
Demirguc-Kant, Asl'
Maksimovic, Vojislav

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Abstract

Theory makes ambiguous predictions about the effects of bank concentration on access to external finance. Using a unique data base for 74 countries offinancing obstacles and financing patterns for firms of small, medium, and large size, the authors assess the effects of banking market structure on financing obstacles and the access of firms to bank finance. The authors find that bank concentration increases financing obstacles and decreases the likelihood of receiving bank finance, with the impact decreasing in size. The relation of bank concentration and financing obstacles is dampened in countries with well developed institutions, higher levels of economic and financial development, and a larger share of foreign-owned banks. The effect is exacerbated by more restrictions on banks'activities, more government interference in the banking sector, and a larger share of government-owned banks. Finally, it is possible to alleviate the negative impact of bank concentration on access to finance by reducing activity restrictions.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2996.

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Date of creation: 31 Mar 2003
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Handle: RePEc:wbk:wbrwps:2996

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Related research
Keywords: Financial Intermediation; Banks&Banking Reform; Decentralization; Payment Systems&Infrastructure; Financial Crisis Management&Restructuring; Financial Intermediation; Banks&Banking Reform; Housing Finance; Economic Theory&Research; Financial Crisis Management&Restructuring;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2001. "Firms as financial intermediaries - evidence from trade credit data," Policy Research Working Paper Series 2696, The World Bank. [Downloadable!]
  2. Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 133-149, February. [Downloadable!] (restricted)
  3. Paolo Mauro, 1996. "The Effects of Corruption on Growth, Investment, and Government Expenditure," IMF Working Papers 96/98, International Monetary Fund.
  4. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2003. "Financial and legal institutions and firm size," Policy Research Working Paper Series 2997, The World Bank. [Downloadable!]
  5. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank. [Downloadable!]
  6. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad, 2001. "Does foreign bank penetration reduce access to credit in developing countries"evidence from asking borrowers," Policy Research Working Paper Series 2716, The World Bank. [Downloadable!]
  7. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December. [Downloadable!] (restricted)
  9. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank. [Downloadable!]
  10. Schiffer, M. & Weder, B., 2001. "Firm Size and the Business Environment: Worldwide Survey Results," Papers 43, World Bank - International Finance Corporation.
  11. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank. [Downloadable!]
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  12. Love, Inessa, 2001. "Financial development and financing constraints - international evidence from the structural investment model," Policy Research Working Paper Series 2694, The World Bank. [Downloadable!]
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  13. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1999. "Institutions, financial markets, and firm debt maturity," Journal of Financial Economics, Elsevier, vol. 54(3), pages 295-336, December. [Downloadable!] (restricted)
  14. Nicola Cetorelli, 2001. "Competition among banks: good or bad?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 38-48. [Downloadable!]
  15. Nicola Cetorelli & Michele Gambera, 1999. "Banking market structure, financial dependence and growth: international evidence from industry data," Working Paper Series WP-99-8, Federal Reserve Bank of Chicago. [Downloadable!]
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  16. Emilia Bonaccorsi di Patti & Giovanni Dell'Ariccia, 2000. "Bank competition and firm creation," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 132-161.
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  17. Cetorelli, Nicola & Peretto, Pietro F., 2000. "Oligopoly Banking and Capital Accumulation," Working Papers 00-19, Duke University, Department of Economics. [Downloadable!]
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  18. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300. [Downloadable!] (restricted)
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  19. Mark G. Guzman, 1999. "Bank structure, capital accumulation and growth: a simple macroeconomic model," Working Papers 99-07, Federal Reserve Bank of Dallas. [Downloadable!]
  20. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December. [Downloadable!] (restricted)
  21. Thomas F. Hellmann & Kevin C. Murdock & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March. [Downloadable!] (restricted)
  22. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 901-926.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Allen N. Berger & Iftekhar Hasan & Leora F. Klapper, 2004. "Further evidence on the link between finance and growth: An international analysis of community banking and economic performance," Finance 0404017, EconWPA. [Downloadable!]
    Other versions:
  2. Luigi Benfratello & Fabio Schiantarelli & Alessandro Sembenelli, 2006. "Banks and Innovation: Microeconometric Evidence on Italian Firms," IZA Discussion Papers 2032, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Marsch, Katharina & Schmieder, Christian & Forster-van Aerssen, Katrin, 2007. "Banking consolidation and small businessfinance : empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  4. Knill, April M., 2005. "Taking the bad with the good : volatility of foreign portfolio investment and financial constraints of small firms," Policy Research Working Paper Series 3797, The World Bank. [Downloadable!]
  5. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Working Papers 04-24, Bank of Canada. [Downloadable!]
  6. Honohan, Patrick, 2005. "Measuring microfinance access : building on existing cross-country data," Policy Research Working Paper Series 3606, The World Bank. [Downloadable!]
  7. Matthias Lücke & Dean Spinanger, 2004. "Liberalisierung des internationalen Handels mit Dienstleistungen: Herausforderungen und Chancen für Entwicklungsländer," Kiel Working Papers 1228, Kiel Institute for the World Economy. [Downloadable!]
  8. Nicola Cetorelli & Philip Strahan, 2004. "Finance as a barrier to entry: bank competition and industry structure in local U.S. markets," Working Paper Series WP-04-04, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  9. Kyle Hyndman & Giovanni Serio, 2007. "Competition and Inter-Firm Credit: Theory and Evidence from Firm-level Data in Indonesia," Departmental Working Papers 0702, Southern Methodist University, Department of Economics. [Downloadable!]
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