University of Hertfordshire

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Bank Competition, Lending Relationships and Firm Default Risk: An Investigation of Italian SMEs

Research output: Contribution to journalArticlepeer-review

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Original languageEnglish
Pages (from-to)907-943
JournalInternational Small Business Journal
Early online date13 Nov 2011
Publication statusPublished - Dec 2012


Building on the literature relating to bank market structure and on the research analysing costs and benefits of concentrated credit relationships, this article aims to empirically assess whether, and to what extent, local credit market concentration impacts on SME default riskiness – making this impact conditional on the closeness of lending relationships. Controlling for inertia, unobserved heterogeneity and endogeneity, we find that bank market concentration positively and significantly affects SME default riskiness when these firms borrow heavily from their main bank and have few credit relationships with other intermediaries. Furthermore, according to our evidence, the influence of credit market concentration on firm default probability is greater as the duration of (close) credit relationships lengthens.

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