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Agency Cost of Debt and Lending Market Competition: A Re-Examination

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Author Info

  • Koskela, Erkki

    ()
    (Bank of Finland Research)

  • Stenbacka, Rune

    ()
    (Swedish School of Economics)

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    Abstract

    We address how lending market competition, measured by banks’ bargaining power, affects the agency costs of debt finance. We show that the threshold for obtaining loan finance is independent of the relative bargaining power of the financier. Moreover, intensified lending market competition leads to lower lending rates and to investment return distributions with lower and less risky returns. Hence increased lending market competition reduces the agency cost of debt financing. Our analysis does not support the view that there is a tradeoff between more intensive lending market competition and higher agency costs of debt finance.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0012.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 12/2000.

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    Length: 23 pages
    Date of creation: 02 Oct 2000
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2000_012

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: bank competition; agency cost of debt;

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    Cited by:
    1. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo Group Munich.
    2. Erkki Koskela & Rune Stenbacka, 2002. "Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility," CESifo Working Paper Series 654, CESifo Group Munich.
    3. Koskela, Erkki & Stenbacka, Rune, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," IZA Discussion Papers 1020, Institute for the Study of Labor (IZA).

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