Agency Cost of Debt and Credit Market Imperfections: A Bargaining Approach
AbstractThis paper studies the effect of credit market imperfections, measured by the relative bargaining power of banks, on the agency costs of debt finance. The threshold of obtaining loan finance is shown to be independent of the relative bargaining power of the financier. However, lower relative bargaining power of banks leads to lower lending rates and investment return distributions with lower, but less risky returns. Thus, our analysis does not support the view, presented in a large existing literature, that there would be a trade-off between reduced credit market imperfections and higher agency costs of debt finance. Copyright Blackwell Publishers Ltd and the Board of Trustees of the Bulletin of Economic Research, 2004.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Bulletin of Economic Research.
Volume (Year): 56 (2004)
Issue (Month): 4 (October)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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