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Does bank competition alleviate credit constraints in developing countries?

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  • Leon, Florian

Abstract

Whether competition helps or hinders firms’ access to finance, particularly in the developing world, is in itself a much debated question in the economic literature and in policy circles. This paper considers the consequences of bank competition on credit constraints using firm level data covering 69 developing and emerging countries. In addition to the classical concentration measure, competition is assessed by computing three non-structural measures (Boone indicator, Lerner index and H-statistic). The results show that bank competition alleviates credit constraints and that bank concentration measure is not a robust predictor of a firm’s access to finance. The study highlights that bank competition not only leads to less severe loan approval decisions but also reduces borrower discouragement.

Suggested Citation

  • Leon, Florian, 2015. "Does bank competition alleviate credit constraints in developing countries?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 130-142.
  • Handle: RePEc:eee:jbfina:v:57:y:2015:i:c:p:130-142
    DOI: 10.1016/j.jbankfin.2015.04.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pietro Grandi & Caroline Bozou, 2018. "Bank competition and firm credit availability: firm-bank evidence from Europe," Working Papers hal-01897744, HAL.
    2. Samangi Bandaranayake & Kuntal Das & W. Robert Reed, 2017. "A Replication of “Are Competitive Banking Systems More Stable?” (Journal of Money, Credit, and Banking, 2009)," Working Papers in Economics 17/01, University of Canterbury, Department of Economics and Finance.
    3. repec:eee:wdevel:v:97:y:2017:i:c:p:1-13 is not listed on IDEAS
    4. Florian Leon, 2015. "What do we know about the role of bank competition in Africa?," Working Papers halshs-01164864, HAL.
    5. Ion Lapteacru, 2016. "Convergence of bank competition in Central and Eastern European countries: Does ownership matter?," Larefi Working Papers 1606, Larefi, Université Bordeaux 4.
    6. Khusrav Gaibulloev & Javed Younas, 2016. "Conflicts and domestic bank lending," Public Choice, Springer, vol. 169(3), pages 315-331, December.
    7. repec:gam:jsusta:v:10:y:2018:i:6:p:1774-:d:149471 is not listed on IDEAS
    8. Ion Lapteacru, 2017. "Murphy-Topel adjustment of the variance-covariance matrix of a two-step panel data model: Evidence from competition-fragility nexus in banking," Economics Bulletin, AccessEcon, vol. 37(2), pages 902-910.
    9. repec:eee:reveco:v:51:y:2017:i:c:p:121-144 is not listed on IDEAS
    10. M. Brei & L. Jacolin & A. Noah, 2018. "Credit risk and bank competition in Sub-Saharan Africa," Working papers 664, Banque de France.
    11. Chauvet, Lisa & Jacolin, Luc, 2017. "Financial Inclusion, Bank Concentration, and Firm Performance," World Development, Elsevier, vol. 97(C), pages 1-13.
    12. Tastaftiyan Risfandy & Amine Tarazi & Irwan Trinugroho, 2018. "Competition in dual markets: Implications for banking system stability," Working Papers hal-01757982, HAL.
    13. Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2017. "Dual market competition and deposit rate setting in Islamic and conventional banks," Economic Modelling, Elsevier, vol. 63(C), pages 318-333.
    14. repec:taf:jbemgt:v:18:y:2017:i:4:p:650-675 is not listed on IDEAS
    15. Dereje Regasa & David Fielding & Helen Roberts, 2017. "Access to Financing and Firm Growth: Evidence from Ethiopia," Working Papers 1707, University of Otago, Department of Economics, revised Apr 2017.
    16. repec:cuf:journl:y:2018:v:19:i:1:liu:huang:li is not listed on IDEAS
    17. repec:gam:jsusta:v:10:y:2018:i:10:p:3400-:d:171764 is not listed on IDEAS
    18. Álvarez, Roberto & Bertin, Mauricio Jara, 2016. "Banking competition and firm-level financial constraints in Latin America," Emerging Markets Review, Elsevier, vol. 28(C), pages 89-104.
    19. Nguyen, My & Perera, Shrimal & Skully, Michael, 2016. "Bank market power, ownership, regional presence and revenue diversification: Evidence from Africa," Emerging Markets Review, Elsevier, vol. 27(C), pages 36-62.

    More about this item

    Keywords

    Banking competition; Credit constraints; Developing countries; Discouraged borrowers;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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