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On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

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  • Degryse, H.A.
  • Ioannidou, V.
  • Schedvin, E.L. von

    (Tilburg University, Center for Economic Research)

Abstract

Credit contracts are non-exclusive. A string of theoretical papers shows that nonexclusivity generates important negative contractual externalities. Employing a unique dataset, we identify how the contractual externality stemming from the non-exclusivity of credit contracts affects credit supply. In particular, using internal information on a creditor’s willingness to lend, we find that a creditor reduces its loan supply when a borrower initiates a loan at another creditor. Consistent with the theoretical literature on contractual externalities, the effect is more pronounced the larger the loans from the other creditor. We also find that the initial creditor’s willingness to lend does not change if its existing and future loans retain seniority over the other creditors’ loans and are secured with assets whose value is high and stable over time.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-130.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011130

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Web page: http://center.uvt.nl

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Keywords: non-exclusivity; contractual externalities; credit supply; debt seniority;

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References

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Cited by:
  1. Cerqueiro, Geraldo & Ongena, Steven & Roszbach, Kasper, 2012. "Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment," Working Paper Series 257, Sveriges Riksbank (Central Bank of Sweden).
  2. HASUMI Ryo & HIRATA Hideaki & ONO Arito, 2011. "Differentiated Use of Small Business Credit Scoring by Relationship Lenders and Transactional Lenders: Evidence from firm-bank matched data in Japan," Discussion papers 11070, Research Institute of Economy, Trade and Industry (RIETI).

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