       SANDRA PEPUR Department of Finance University of Split, Faculty of Economics Cvite Fiskovića 5, Split REPUBLIC OF CROATIA sandra.pepur@efst.hr, http://www.efst.hr MARIJANA ĆURAK Department of Finance University of Split, Faculty of Economics Cvite Fiskovića 5, Split REPUBLIC OF CROATIA marijana.curak@efst.hr, http://www.efst.hr MAJA PERVAN Department of Economics University of Split, Faculty of Economics Cvite Fiskovića 5, Split REPUBLIC OF CROATIA maja.pervan@efst.hr, http://www.efst.hr Abstract:  According to conflicting theoretical considerations, as well as the results of the existing empirical researches, bank concentration could lead to either credit rationing or enhancing firm credit access. This paper analyzes the impact of banking industry structure on firm financing in Croatia controlling for other firm6level, banking sector6level as well as macroeconomic determinants of firm leverage. The analysis is based on the sample of 1062 manufacturing enterprises over the period from 2002 to 2011 and performed by applying dynamic panel methodology. Our findings confirm the validity of the market structure theory according to which bank concentration impedes firm financing. KeyWords:  Bank concentration, market power theory, information6based hypothesis, firm access to finance, leverage, Croatia   A positive effect of financial system on economic growth is confirmed by numerous empirical researches (for the survey see Levine [15], and Ang [1]). Namely, financial institutions and markets could affect marginal productivity of capital, saving transfer costs, saving rate and technological innovation, thus positively influencing the rate of economic growth (Pagano [20]). However, the inefficient functioning of financial markets and institutions could hinder the financing of productive investments and negatively affect real economy. According to the theoretical considerations as well as the empirical studies, one of the features of financial system, which finance6economic growth relationship depends on, is its market structure. There are two opposite views of the impact of the financial system concentration on firm access to finance. The first one is the market power theory which states that lower competition implies inefficiency in resource allocation leading to higher lending rates and credit rationing that limit firm financing. According to the alternative view, which is the relationship lending theory (the information6 based hypothesis), a higher level of concentration could encourage financial intermediaries to reduce information asymmetry through relationships with firms, contributing to company financing. The results of the existing empirical studies are conflicting. Recent Researches in Applied Economics and Management - Volume I ISBN: 978-960-474-323-0 387