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Credit market competition, collateral and firms' finance

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Author Info
Gabriel Jiménez () (Banco de España)
Vicente Salas-Fumás () (Banco de España)
Jesús Saurina () (Banco de España)
Abstract

This paper investigates the relationship between credit market competition and the availability of bank credit for firms of unobserved credit quality when firms pledge collateral to secure the loans. Loan data from the Spanish Credit Register shows that the average credit quality of borrowers that get loans in a provincial market decreases with market concentration (which is shown to be positively correlated with market power) and with the availability of collateral, although the marginal effect of each variable decreases for higher values of the other. We also find that credit lines' interest rates increase with the availability of collateral, but the increase is lower for banks operating in more concentrated credit markets.Therefore market power in credit markets and collateral appear as substitutes to increase the availability of bank finance under asymmetric information.

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File URL: http://www.bde.es/informes/be/docs/dt0612e.pdf
File Format: application/pdf
File Function: First version, June 2006
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Publisher Info
Paper provided by Banco de España in its series Banco de España Working Papers with number 0612.

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Length: 28 pages
Date of creation: Jun 2006
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Handle: RePEc:bde:wpaper:0612

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Keywords: collateral competition asymmetric information relationship banking

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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  1. Luis J. Álvarez & Emmanuel Dhyne & Marco M. Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Roberto Sabbatini & Fernando Martins & Harald Stahl & Philip Vermeulen & Jouko Vilmun, 2005. "Sticky prices in the euro area - a summary of new micro evidence," Working Paper Series 563, European Central Bank. [Downloadable!]
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  2. S. Fabiani & M. Druant & I. Hernando & C. Kwapil & B. Landau & C. Loupias & F. Martins & T. Mathä & R. Sabbatini & H. Stahl & A. Stokman, 2005. "The pricing behaviour of firms in the euro area : new survey evidence," Research series 200511-1, National Bank of Belgium. [Downloadable!]
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  3. Enrique Alberola & Luis Molina & Daniel Navia, 2005. "Say You Fix, Enjoy And Relax The Deleterious Effect Of Peg Announcements On Fiscal Discipline," International Finance 0509001, EconWPA. [Downloadable!]
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  4. Máximo Camacho & Gabriel Pérez-Quirós, 2005. "Jump-and-rest effect of U.S. business cycles," Banco de España Working Papers 0507, Banco de España. [Downloadable!]
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  5. J. Ignacio Garcia-Perez & Juan F. Jimeno, 2007. "Public Sector Wage Gaps In Spanish Regions," Manchester School, University of Manchester, vol. 75(4), pages 501-531, 07. [Downloadable!] (restricted)
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  6. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan Francisco, 2005. "Dual Employment Protection Legislation: A Framework for Analysis," CEPR Discussion Papers 5033, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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