Concentration in bank lending: What do we learn from European comparisons?

We empirically investigate the determinants of lenders concentration providing bank loans to European borrowers. We analyze the influence of loan and borrower characteristics but also legal enforcement variables that are expected to influence the financial and strategic decisions related to bank lending concentration. We find that firms tend to diversify sources of financing by reducing concentration when their level of quality is higher and both asymmetric information and the risk of early liquidation are minimal. Furthermore, lenders’ monitoring appears to be an important feature of lending concentration, particularly in order to prevent private benefits extraction by insiders in legal environment where shareholders benefit from better protections.