On Regional Bank Concentration and Firm Leverage: The Case of Colombia

Abstract

ABSTRACT Disparities in regional bank concentration within Colombia, an emerging economy, are studied to evaluate their effects in the book leverage of local enterprises. Analyzing the 2016–2021 financial statements of 18,812 companies established in the country, we find evidence that the book leverage of individual firms is significantly correlated with the concentration of bank lending within their geographical region. Specifically, increases in bank concentration result in book leverage increases. Leverage for the country’s largest firms has a significant and complex relationship with their region’s bank concentration. The largest firms enjoy significantly higher levels of book leverage in the country’s less concentrated areas. This higher leverage disappears as concentration increases and, in the most concentrated regions, their leverage is lower than that of their counterparts. This manuscript joins the growing works in the literature claiming the existence of factors within a geographical location that counter the absence in bank competition, allowing some firms to effectively access institutional finance and mitigate some of the negative effect of banking concentration.