Common Lenders 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 date2018
Publication statusPublished - 2018
EventThe 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018 - Athens College, Athens, Greece
Duration: 31 Aug 20182 Sep 2018
Conference number: 45
http://www.earie2018.org/

Conference

ConferenceThe 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018
Number45
LocationAthens College
CountryGreece
CityAthens
Period31/08/201802/09/2018
Internet address

Bibliographical note

CBS Library does not have access to the material

Cite this

Saidi, F., & Streitz, D. (2018). Common Lenders and Product Market Competition. Paper presented at The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018, Athens, Greece.
Saidi, Farzad ; Streitz, Daniel. / Common Lenders and Product Market Competition. Paper presented at The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018, Athens, Greece.
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Saidi, F & Streitz, D 2018, 'Common Lenders and Product Market Competition' Paper presented at, Athens, Greece, 31/08/2018 - 02/09/2018, .

Common Lenders and Product Market Competition. / Saidi, Farzad; Streitz, Daniel.

2018. Paper presented at The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018, Athens, Greece.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - Common Lenders and Product Market Competition

AU - Saidi, Farzad

AU - Streitz, Daniel

N1 - CBS Library does not have access to the material

PY - 2018

Y1 - 2018

N2 - 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.

AB - 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.

M3 - Paper

ER -

Saidi F, Streitz D. Common Lenders and Product Market Competition. 2018. Paper presented at The 45th Annual Conference of the European Association for Research in Industrial Economics. EARIE 2018, Athens, Greece.