Financial constraints, bank concentration and SMEs: evidence from Pakistan

Abstract

Purpose

This paper aims to empirically investigate the impact of bank market concentration of financial constraints on firm investment.

Design/methodology/approach

This analysis is based on cross-industries panel of 368 listed Pakistani non-financial firms over the period of 2001-2009. Further, the Generalized Method of Moments estimation technique has been used to estimate the dynamic panel data model.

Findings

By applying a dynamic panel analysis, it was found that small- and medium-sized enterprises (SMEs) are financially constrained in the credit market. The main finding indicates that reduction in bank concentration eases financing constraints, and this effect is more pronounced for SMEs. In addition, while testing the firm opacity in this context, results reveal that opaque firms are more financially constrained, and bank market competition is less favourable to the firms with greater opacity.

Originality/value

The results, first, assess the efficacy of ongoing financial reforms in Pakistan and, second, offer implications for other economies that exhibit financial development similar to that of Pakistan.

Citation

Saeed, A. and Sameer, M. (2015), "Financial constraints, bank concentration and SMEs: evidence from Pakistan", Studies in Economics and Finance, Vol. 32 No. 4, pp. 503-524. https://doi.org/10.1108/SEF-02-2014-0046