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Agency Cost of Debt and Lending Market Competition: Is there a Relationship?

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Author Info
Koskela, Erkki
Stenbacka, Rune
Abstract

We address the question of how lending market competition, measured by the bargaining power of banks, affects the agency costs of debt finance. It is shown that intensified lending market competition will lead to lower lending rates and investment return distributions which are shifted towards lower, but less risky returns. Consequently, it follows that increased lending market competition will reduce the agency cost of debt financing. Hence, our analysis does not lend support to the commonly held view that there would be a trade-off between more intensive lending market competition and higher agency costs of debt finance.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 274.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_274

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Related research
Keywords: Bank competition; agency cost of debt;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository 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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    Other versions:
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    Other versions:
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    Other versions:
  6. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
    Other versions:
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    Other versions:
  18. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  19. Bester,Helmut Hellwig,Martin, 1987. "Moral hazard and equilibrium credit rationing: An overview of the issues," Discussion Paper Serie A 125, University of Bonn, Germany.
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    Other versions:
  23. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1997. "Agency Costs, Firm Behavior and the Nature of Competition," IDEI Working Papers 77, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
    Other versions:
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