This study investigates the effect of banking sector competition on the market structure dynamics of the manufacturing industry, on which a consensus has not been established yet in the related literature. The study focuses on the Turkish case and covers the period of 1988-2001. The market structure dynamics of manufacturing industry are represented by average firm size and number of establishments. The external finance dependence of each sector has been taken into account. The model controls for financial development, share of foreign banks, value added share of each sector to represent their life cycle stages and economic crises as well as the concentration in the banking sector Overall, the results obtained from the fixed effects models indicate that concentration in the Turkish banking sector has resulted in new entries and establishment of a more competitive environment in the manufacturing industry over the sample period.