The author shows, in a model of competitive banks, that the characteristics of loan contracts are affected by product market imperfections in the borrower's industry. A bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and, thus, dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank. While it is individually rational for a firm to obtain a loan commitment, all the firms in that industry taken together are made worse off by the existence of loan commitments. Copyright 1990 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 45 (1990) Issue (Month): 5 (December) Pages: 1641-53 Download reference. The following formats are available: HTML
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