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Product Market Imperfections and Loan Commitments

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Author Info
 Maksimovic, Vojislav

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Abstract

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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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 5 (December)
Pages: 1641-53
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:5:p:1641-53

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  1. Ozgur Emre Ergungor, 2000. "Relationship loans and information exploitability in a competitive market: loan commitments vs. spot loans," Working Paper 0013, Federal Reserve Bank of Cleveland. [Downloadable!]
  2. Neelam Jain & Thomas D. Jeitschko & Leonard J. Mirman, 2001. "Financial Intermediation and Entry Deterrence," Tinbergen Institute Discussion Papers 01-037/2, Tinbergen Institute. [Downloadable!]
    Other versions:
  3. Sudipto Dasgupta & Sheridan Titman, 1996. "Pricing Strategy and Financial Policy," NBER Working Papers 5498, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Kleimeier,Stefanie & William L. Megginson, 2002. "An empirical analysis of limited recourse project," Research Memoranda 066, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  5. Jing Chen, 2005. "Imperfect Market or Imperfect Theory: A Unified Analytical Theory of Production and Capital Structure of Firms," Finance 0509009, EconWPA. [Downloadable!]
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