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

Abstract

Using data from 2000 to 2007, we investigate the e§ect 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 by which we test the relationship between banking market structure and Orm cre- ation. First, we estimate the model on the whole sample, to test the general e§ect; then, we restrict the analysis to the high-technology-intensive sectors to verify the speciOc impact of banking market structure on industries which are, usually, more in need of external Onance. 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. Entrepreneur- ship is also favoured by well-developed Onancial markets, perceived quality of the institutional environment, policies to prevent corruption and e§ective property rights protection.