Bank Market Structure and Firm Capital Structure in Europe

We explore the impact of concentration in the banking markets on the capital structure of publicly quoted non-\u85nancial \u85rms in the EU15 over the period 1997-2005, an era marked by intensive merger activity in the banking sector. Our main nding is a negative and signi\u85cant relationship between the degree of concentra-tion of European bank markets and the market leverage of \u85rms, indicating the persistence of credit constraints. This \u85nding is robust when we use behavioral measures of bank conduct. This support for the market power hypothesis indicates that further measures are needed to make bank lending more competitive