Consortium
Project Structure
WP 2: BANKING SYSTEMS AND THE PERFORMANCE OF FIRMS
Objectives
Work description
It is examined whether or not bank concentration due to mergers and acquisitions leads to a change in the lending behaviour of banks. Panel data for 3500 firms in the EU15 is taken from the Amadeus database and cover the recent consolidation period. Findings will provide information on the degree of credit constraints of non-financial firms that arise due to bank consolidation, on the relative effect of demand and supply factors in the choice of the capital structure of firms, and on the ability of firms in different sectors (manufacturing, services) to sustain their growth plans.
Different sources of external finance lead to different degrees of monitoring of firms. Also, the ownership structure of firms may have an effect on their ability to attract bank loans. The analysis should yield robust conclusions about the interplay between various types of external firm finance, the disciplining role of the ownership structure and bank loans, and the prospects for firm growth. Firm performance is assessed by means of both accounting and market-based measures (e.g., stock returns from Datastream), whereby relevant risks can be subdivided into systematic risk (market beta) and idiosyncratic risk.
The Amadeus database is used to derive a measure for firm-level heterogeneity for different EU countries and industries. This will allow assessing whether large firms have a significant impact on the rest of the economy and whether idiosyncratic shocks are important. Increased globalization may lead to an increase in the importance of idiosyncratic shocks. In that case, economies have become more dependent on the development of single firms. The heterogeneity measure is explained in a panel setting by variables capturing structural characteristics of the economies and industries and by the degree of goods and financial market integration. The structure of the financial system and the overall institutional framework are also taken into account.
Extraction of policy relevant conclusions. There is, e.g., an obvious link to competition policy in banking. Potential effects on market power have to be balanced with efficiency and informational advantages. There are also policy-relevant issues related to potential barriers for firms to access different types of external finance and to the regulatory framework for efficient markets for corporate control.