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Bank Market Structure and Firms’ Leverage: Case of Croatia

This paper analyzes the impact of bank market structure on firms’ leverage in the Republic of Croatia with respect to the firms’ size. Two opposite theories, the market power theory and the relationship lending theory, are tested on very large and large enterprises, and medium and small companies, separately using panel data for the period from 2002 to 2011. According to the results the bank concentration positively affects firms’ leverage, regardless of the firms’ size, confirming predictions of relationship lending theory.

Bank market structure; leverage; large and small companies; market power and information-based hypothesis

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