The effect of Bank Concentration on Entrepreneurship in Central and Eastern European Transition Countries

Using data from 2000 to 2007, we investigate the effect of bank concentration on the entrepreneurial initiative in the Central and Eastern European transition countries for eight industrial sectors. We set up a simple structural model bywhich we test the relationship between banking market structure and ...rm creation. First, we estimate the model on the whole sample, to test the general effect; then, we restrict the analysis to the high-technology-intensive sectors to verify the speci...c impact of banking market structure on industries which are, usually, more in need of external ...nance. Our results provide evidence of a non monotonic relationship: bank concentration promotes entrepreneurship; however, an excessive level of concentration becomes harmful. Moreover, the positive effect of concentration decreases for high-technology-intensive sectors. Entrepreneurship is also favoured by well-developed ...financial markets, perceived quality of the institutional environment, policies to prevent corruption and effective property rights protection.