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On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies

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  • Schnitzer, Monika

Abstract

Banks play a central role in financing and monitoring firms in transition economies. This study examines how bank competition affects the efficiency of credit allocation; monitoring of firms; and the firms' restructuring effort. In our model, banks compete to finance an investment project with uncertain return. By screening the firm a bank learns about its profitability. Surprisingly, it is found that an increase in bank competition need not reduce a bank's screening incentive even though it lowers its expected profits. Furthermore, competition has a positive impact on the firms restructuring efforts. This suggests a positive role for bank competition in transition economies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2013.

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Date of creation: Nov 1998
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Handle: RePEc:cpr:ceprdp:2013

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Keywords: Bank Competition; Corporate Finance; Corporate Governance; Restructuring; screening; Transition Economies;

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References

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  1. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, American Finance Association, vol. 45(4), pages 1069-87, September.
  2. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers 3906, National Bureau of Economic Research, Inc.
  3. Yanelle, Marie-Odile, 1997. "Banking Competition and Market Efficiency," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(2), pages 215-39, April.
  4. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 181, C.E.P.R. Discussion Papers.
  5. Caminal, Ramón & Matutes, Carmen, 1997. "Bank Solvency, Market Structure, and Monitoring Incentives," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1665, C.E.P.R. Discussion Papers.
  6. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  7. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1382, C.E.P.R. Discussion Papers.
  8. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 5(2), pages 184-216, April.
  9. von Thadden, Ernst-Ludwig, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(4), pages 557-75, October.
  10. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, Econometric Society, vol. 58(2), pages 429-52, March.
  11. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics, University of Munich, Department of Economics 19772, University of Munich, Department of Economics.
  12. Michael H. Riordan, 1992. "Competition and Bank Performance: A Theoretical Perspective," Papers, Boston University - Industry Studies Programme 0026, Boston University - Industry Studies Programme.
  13. Dittus, Peter, 1996. "Why East European banks don't want equity," European Economic Review, Elsevier, vol. 40(3-5), pages 655-662, April.
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Citations

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Cited by:
  1. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
  2. Christa Hainz & Laurent Weill & Christophe J. Godlewski, 2008. "Bank Competition and Collateral: Theory and Evidence," Working Papers of LaRGE Research Center 2008-19, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  3. Hainz, Christa, 2008. "Bank Competition - When is it Good?," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 244, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Coccorese, Paolo, 2008. "An investigation on the causal relationships between banking concentration and economic growth," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 557-570, June.
  5. Hainz, Christa, 2004. "Quality of Institutions, Credit Markets and Bankruptcy," Discussion Papers in Economics 388, University of Munich, Department of Economics.
  6. Calin Valsan, 2001. "Three Measures of Corporate Restructuring in a Transition Economy: The Case of Newly Privatised Romanian Companies," Post-Communist Economies, Taylor & Francis Journals, vol. 13(1), pages 121-128.
  7. Chen, Anlin & Kao, Lanfeng, 2011. "Effect of collateral characteristics on bank performance: Evidence from collateralized stocks in Taiwan," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 300-309, February.
  8. Hans Degryse & Steven Ongena, 2004. "The Impact of Competition on Bank Orientation and Specialization (new titel: The impact of competition on bank orientation)," CESifo Working Paper Series 1119, CESifo Group Munich.
  9. Claudia Capozza & Angela Stefania Bergantino, 2013. "The effect of Bank Concentration on Entrepreneurship in Central and Eastern European Transition Countries_x0003_," ERSA conference papers ersa13p1049, European Regional Science Association.
  10. Ogura, Yoshiaki, 2010. "Interbank competition and information production: Evidence from the interest rate difference," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 19(2), pages 279-304, April.
  11. Hainz, Christa, 2007. "The Effect of Bank Competition on the Bank's Incentive to Collateralize," Discussion Papers in Economics 2007, University of Munich, Department of Economics.

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