| This dissertation consists of two essays which investigate how bank competition affects firms' financial policy and bank contracts. In the first essay I investigate how an increase in bank competition, and thereby an expansion in the supply of bank credit, influences affected firms' cash holdings, their use of trade credit, short-term debt, and long-term debt. I find that bank competition leads to a reduction in affected firms' use of trade credit, short-term debt and cash holdings, and an increase in their use of long-term debt. Moreover, some of these effects are more pronounced for financially constrained firms. Consequently the evidence highlights the influence of bank competition on corporate financial policies, particularly for financially constrained firms.;In the second essay I investigate the relation between bank competition and corporate loan contracts using an instrumental variables approach following the passage of interstate banking deregulation law in 1994. I find that loan size, number of covenants, and covenant slack increase with bank competition. However, although the number of covenants increases, loan size also decreases for financially constrained firms. The results highlight the influence of bank competition on corporate debt covenants and underscore the differential impacts of bank competition on financially-constrained versus non-constrained firms. |
