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Banking Sector Concentration and Firm Indebtedness: Evidence from Central and Eastern Europe

  • Mariya Hake


    (Oesterreichische Nationalbank, Foreign Research Division)

Using data from the Amadeus firm-level database, this paper explores the impact of banking sector concentration on corporate debt in the manufacturing sectors in eight Central, Eastern and Southeastern European (CESEE) countries in the precrisis period 2002–2007. Our findings indicate that banking sector concentration has a positive effect, raising firm debt. This confirms the predictions of the relationship lending theory. However, in the CESEE countries with the most concentrated banking markets – such as Estonia and Lithuania – the effect on the corporate leverage ratio is found to be negative. We also show that young firms increase their leverage, while mature firms reduce their dependence on external financing when banking markets are more concentrated. Furthermore, the positive impact of banking sector concentration is weakened by EU accession and greater stock market capitalization, which can be explained by the financial deepening process and the improved availability of alternative sources of external finance.

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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2012)
Issue (Month): 3 ()
Pages: 48-68

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Handle: RePEc:onb:oenbfi:y:2012:i:3:b:3
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