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Bank Concentration and Product Market Competition

Author

Listed:
  • Farzad Saidi
  • Daniel Streitz

Abstract

This paper documents a link between bank concentration and markups in nonfinancial sectors. We exploit concentration-increasing bank mergers and variation in banks’ market shares across industries and show that higher credit concentration is associated with higher markups and that high-market-share lenders charge lower loan rates. We argue that this is due to the greater incidence of competing firms sharing common lenders that induce less aggressive product market behavior among their borrowers, thereby internalizing potential adverse effects of higher rates. Consistent with our conjecture, the effect is stronger in industries with competition in strategic substitutes where negative product market externalities are greatest.

Suggested Citation

  • Farzad Saidi & Daniel Streitz, 2021. "Bank Concentration and Product Market Competition," The Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 4999-5035.
    • Handle: RePEc:oup:rfinst:v:34:y:2021:i:10:p:4999-5035.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab005
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    Citations

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    Cited by:

    1. repec:ecb:ecbdps:202117 is not listed on IDEAS
    2. Liu, Xiaohua & Zhao, Qiuhan, 2024. "Banking competition, credit financing and the efficiency of corporate technology innovation," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Li, Shengfeng & Han, Liang & Mi, Biao, 2024. "The effects of banking market structure on corporate cash holdings and the value of cash," Journal of Empirical Finance, Elsevier, vol. 75(C).
    4. Lu, Yiming & Wang, Yu, 2024. "Firms and banks common ownership, economic policy uncertainty, and firms’ R&D investment: Evidence from China," Finance Research Letters, Elsevier, vol. 60(C).
    5. Ferrando, Annalisa & McAdam, Peter & Petroulakis, Filippos & Vives, Xavier, 2021. "Product market structure and monetary policy: evidence from the Euro Area," Working Paper Series 2632, European Central Bank.
    6. Chen, Xiaoxiong & Liu, Guanchun & Liu, Yuanyuan & Zhang, Yanren, 2022. "Banks’ liability structure and risk taking: Evidence from a quasi-natural experiment in China," Finance Research Letters, Elsevier, vol. 49(C).
    7. Edgar A. Ghossoub & Andre Harrison & Robert R. Reed, 2024. "Banking concentration, financial openness, and financial development," Contemporary Economic Policy, Western Economic Association International, vol. 42(1), pages 120-159, January.
    8. repec:ecb:ecbdps:202115 is not listed on IDEAS
    9. Bao, Yangming, 2022. "Peer information in loan pricing," Journal of Corporate Finance, Elsevier, vol. 76(C).
    10. Izadi, Mohammad & Saadi, Vahid, 2023. "Banking Market Structure and Trade Shocks," Journal of Banking & Finance, Elsevier, vol. 153(C).

    More about this item

    Keywords

    E23; E32; E44; G20; G21; L14;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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