Regional Financial Development and Bank Competition: Effects on Firms' Growth

Fernandez de Guevara, Juan and Maudos, Joaquin (2009): Regional Financial Development and Bank Competition: Effects on Firms' Growth. Published in: Regional Studies , Vol. 43, No. 2 (2009): pp. 211-228.

Abstract

This paper analyzes the effect of regional financial development and bank competition on firms’ growth using the Spanish provinces as a testing ground. Our results show that firms in industries with a greater dependence on external finance grow faster in more financially developed provinces. The results also show that bank monopoly power has an inverted-U effect on firms’ growth, suggesting that market power has its highest effect at intermediate values. The effect is heterogeneous among firms according to the financial dependence of the industry they belong to. This result is consistent with the literature on relationship banking which argues that bank competition can have a negative effect on the availability of finance for more informationally opaque firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; regional financial development; bank competition
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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