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

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  • Mariya Hake

    (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

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.

Suggested Citation

  • Mariya Hake, 2012. "Banking Sector Concentration and Firm Indebtedness: Evidence from Central and Eastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 48-68.
    • Handle: RePEc:onb:oenbfi:y:2012:i:3:b:3
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    Cited by:

    1. Petr Teply & Tomas Klinger, 2019. "Agent-based modeling of systemic risk in the European banking sector," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 811-833, December.
    2. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    3. Tomas Klinger & Petr Teply, 2017. "Agent-Based Risk Assessment Model of the European Banking Network," CERGE-EI Working Papers wp602, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    Keywords

    Firm leverage; banking sector concentration; Central; Eastern and Southeastern Europe; firm-level data;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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