Banking, Commerce, and Antitrust
AbstractWe develop a model in order to explore how a bank's equity stake in a competitor of a borrower affects the financing relationship with the borrower and product market outcomes. The bank's affiliation with the competitor can give rise to anti- or pro-competitive effects. Large equity stakes can facilitate anti-competitive conduct. In sharp contrast, small equity stakes are pro-competitive. The reason is that the bank's equity stake in the competitor hardens the borrower's budget constraint. This alleviates credit rationing problems and enables the borrower to invest more aggressively. These findings suggest that bank equity holdings in industrial firms have non-monotonic effects on product market competition.
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Bibliographic InfoPaper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 00.22.
Length: 28 pages
Date of creation: Aug 2000
Date of revision: May 2002
Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC
banking and commerce; equity participations; soft budget constraint; antitrust;
Other versions of this item:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- L4 - Industrial Organization - - Antitrust Issues and Policies
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