Does Bank Concentration Lead to Concentration in Industrial Sectors?
This paper explores the effect of banking market structure on the market structure
of industrial sectors. It asks whether concentration in the banking market promotes
the formation of industries constituted by a few, large rms, or rather, whether it
facilitates the continuous entry of new rms, thus maintaining unconcentrated market
structures across industries. Theoretical arguments could be made to support either
hypotethical scenario. Empirical evidence is derived from a sample of 35 manufacturing
industries in 17 OECD countries, adopting a methodology that allows controlling for
other determinants of industry market structure common across industries or across
countries. Bank concentration is found to enhance industries' market concentration,
especially in sectors highly dependent on external nance. Such effect is however weaker
in countries characterized by higher overall financial development.