Does bank market power affect SME financing constraints?

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SSRN Electronic Journal

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While the importance of the banking sector on various fundamental economic variables is well-documented in the literature, little is known about the relationship between the bank market structure and access to finance for opaque firms, particularly in developing economies such as South Africa. Using ordered probit and logit models, we investigate the impact of bank market structure on small, micro and medium enterprises (SMMEs)access to finance. Our results show that high bank concentration increases the obstacle to accessing finance for SMMEs in South Africa, and the relationship is non-linear. Thus, to a greater extent, our study validates the market power hypothesis, which argues that low competition diminishes firms’ access to finance.

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This study investigates the impact of firms’ operational and financial performance alongside banking/financial/economic conditions on SME bank loan terms and conditions during a period of economic uncertainty. We observe that since 2010, more firms have experienced an increase in loan price. Firms’ size, age, profit/cost and capital position are important determinants of the terms and conditions of bank loans. Female-headed enterprises pay relatively higher interest rates. Public guarantees play a positive role in loan terms setting. Better capitalized and higher funding cost banks charge higher interest rates. The time it takes to settle insolvencies affects the loan maturity period. GDP per capita and growth significantly influence the terms and conditions of SME bank loans. JEL classification: G20; G21; G23; G28; L11

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We examine the impact of the closeness of banking relationships on financial constraint problems of SMEs in the French context. To do so, we use the cash-flow sensitivity of cash method elaborated by Almeida et al (2004). Through a unique sample of 1 145 bank-firm relationships observed during the 2003-2012 period, we find evidence that single bank firms and firms engaged with a decentralized main bank are less constrained than other firms, but that those which meet those two criteria simultaneously are not. Firms with a decentralized main bank and less than three banks appear however less constrained. KZ and WW index analyses performed as robustness checks underline the importance of the decentralized organizational structure of the main bank in reducing financial constraints of SMEs. The analysis of trade credit use also provides results in line with the hypothesis of a less important financial constraint problem for SMEs in close banking relationship. Finally we find evidence tha.

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SSRN Electronic Journal

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In this letter a series of stylized facts are presented on competition in Irish private sector lending markets across periods of both significant economic expansion and decline. Firstly, concentration of lending to the private sector is shown to have fallen during the boom period of 2004-2008, and to have steadily risen since the onset of the crisis. Secondly, we document that the lending market for Small and Medium Enterprises (SMEs) is significantly more concentrated than that for the private sector in total. Thirdly, we observe a degree of heterogeneity in the concentration of lending to different sectors of economic activity. Fourthly, concentration of new lending flows to SMEs in 2010 and 2011 is shown to be significantly higher than concentration of the stock of credit across all sectors, suggesting that the trend is towards even higher concentration in the SME market. Finally, it is apparent that the share of foreign banks in private sector credit stock reached its peak just .

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Policy Research Working Papers

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Using a unique firm level data – Enterprise Surveys- we develop a new measure of credit constrained status for firms using hard data instead of perceptions data. We classify firms into 4 categories: Not Credit Constrained, Maybe Credit Constrained, Partially Credit Constrained, and Fully Credit Constrained to understand the characteristics of the firms that fall into each group. In particular we look at firm size as a potential determinant of credit constrained status. First, we find that SMEs are more likely to be credit constrained (either partially or fully) than large firms. Furthermore, they finance their working capital and investments mainly through trade credit and informal sources of finance. These two results hold to a large extent in all the regions of the developing world. Second, although size is a significant predictor of the probability of being credit constrained, firm age is not. Third, high performing firms measured by labor productivity are less likely to be credi.

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