Abstract
In this paper, we unveil a disregarded benefit of product market competition for small and medium enterprises (SMEs). In a model where firms are financed through collateralized bank loans and compete à la Cournot, we introduce a probability of bankruptcy. We investigate how the number of rivals and the existence of outsiders willing to acquire productive assets of distressed incumbents affect the equilibrium share of investment financed with bank credit. Using a sample of Italian SMEs, we find evidence that product market competition impacts positively on the share of investment financed with bank credit only when outsiders are absent.