Bank market power and SME financing constraints

Some studies find that greater market power is associated with higher credit availability (information hypothesis); others find that less competitive banking markets lead to more credit rationing (market power hypothesis). For the first time we directly test these two competing hypotheses using alternative measures of market power-- the traditional concentration ratio and a structural competition indicator, the Lerner index. The results are quite sensitive to the choice between these two market power indicators. However, the Lerner index is the more consistent indicator and exhibits a larger (and positive) marginal effect on the probability that a firm is financially constrained. (100 words)