Bank Concentration and Product Market Competition

Farzad Saidi, Daniel Streitz

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

This paper explores how bank concentration affects product market competition of non-financial firms. We argue that sharing common lenders lowers the cost of debt financing in an industry. Exploiting plausibly exogenous variation in banks’ industry market shares stemming from bank mergers, we find that high-market-share lenders charge lower loan rates. This is because common lenders internalize potential adverse effects of higher loan rates on the product market behavior among their competing borrowers. In the aggregate, we show that a higher proportion of firms sharing the same lender and higher credit concentration in an industry lead to lower output. Effects are stronger for industries with competition in strategic substitutes. Our findings support the idea that bank concentration helps firms to achieve less competitive outcomes in the product market.
Original languageEnglish
Publication date2019
Number of pages45
Publication statusPublished - 2019
EventThe 79th Annual Meeting of American Finance Association. AFA 2019 - Hilton Atlanta, Atlanta, United States
Duration: 4 Jan 20196 Jan 2019
Conference number: 79
https://editorialexpress.com/conference/AFA2019/program/AFA2019.html

Conference

ConferenceThe 79th Annual Meeting of American Finance Association. AFA 2019
Number79
LocationHilton Atlanta
CountryUnited States
CityAtlanta
Period04/01/201906/01/2019
Internet address

Keywords

  • Industry competition
  • Product market
  • Syndicated loans
  • Bank concentration

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