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Information disclosure in credit markets when banks' costs are endogenous

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  • Van Tassel, Eric
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    Abstract

    In this paper we develop a model of information disclosure among banks based on an endogenous interest rate for externally placed debt. Banks with private credit information are given an opportunity to disclose information prior to competing for borrowers. While disclosure eliminates a bank's information advantage over its competitors, disclosing information creates a new advantage for the bank in terms of a lower cost of external funds. We find that the incentive for a bank to disclose information is inversely related to the bank's capital ratio and positively related to the number of other banks that disclose information.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 2 (February)
    Pages: 490-497

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:2:p:490-497

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    Web page: http://www.elsevier.com/locate/jbf

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    Keywords: Information disclosure Bank competition External debt;

    References

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    Cited by:
    1. Verónica Balzarotti & Alejandra Anastasi, 2013. "Does Competition for Novice Borrowers Hurt Access to Finance? An Analysis in a Context of High Risk and Low Outreach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(69), pages 101-149, December.

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