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

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Author Info

  • Degryse, Hans

    ()
    (Department of Finance)

  • Ioannidou , Vasso

    ()
    (Department of Fin)

  • von Schedvin, Erik

    ()
    (Research Department, Central Bank of Sweden)

Abstract

A string of theoretical papers shows that the non-exclusivity of credit contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect the supply of credit. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its credit supply when a borrower obtains a loan at another creditor (an “outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial creditor’s existing and future loans retain seniority over the outside loans and are secured with valuable collateral.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 258.

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Length: 42 pages
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:hhs:rbnkwp:0258

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
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Web page: http://www.riksbank.com/
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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. Hasumi, Ryo & Hirata, Hideaki & Ono, Arito, 2012. "Differentiated Use of Small Business Credit Scoring by Relationship Lenders and Transactional Lenders: Evidence from Firm-Bank Matched Data in Japan," Working Paper Series 23, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  2. Steven Ongena & Kasper Roszbach & Geraldo Cerqueiro, 2012. "Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment," 2012 Meeting Papers 235, Society for Economic Dynamics.

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