How Many Banks does it Take to Lend? Empirical Evidence from Europe

We provide empirical evidence on the determinants of the number of bank lenders using a sample of more than 3000 loans to firms from 24 European countries. Our testable hypotheses are built upon different theoretical frameworks drawn from the existing financial intermediation literature relative to the determinants of the optimal number of lenders. They essentially concern firm but also loan and country characteristics. Our main results show that the number of lenders increases in the presence of firm and loan characteristics that reduce adverse selection and moral hazard risks, and when the legal environment allows mitigating expropriation risk.