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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 intransition economies. We study how bank competition affects theefficiency of the credit allocation, the monitoring of firms, and thefirms’ restructuring effort. In our model, banks compete to finance aninvestment project with uncertain return. By screening the firm, a banklearns about its profitability. Surprisingly, we find that an increasein bank competition need not reduce a bank’s screening incentives eventhough it lowers its expected profits. Furthermore, competition has apositive impact on the firm’s restructuring effort. This suggests apositive role for bank competition in transition economies.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19899.

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Date of creation: 1999
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Publication status: Published in Journal of Institutional and Theoretical Economics (JITE) 1 155(1999): pp. 22-46
Handle: RePEc:lmu:muenar:19899

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  1. von Thadden, Ernst-Ludwig, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 557-75, October.
  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. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  4. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics 19772, University of Munich, Department of Economics.
  5. Michael H. Riordan, 1992. "Competition and Bank Performance: A Theoretical Perspective," Papers 0026, Boston University - Industry Studies Programme.
  6. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers 181, C.E.P.R. Discussion Papers.
  7. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  8. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 191-213, April.
  9. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
  10. Yanelle, Marie-Odile, 1997. "Banking Competition and Market Efficiency," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 215-39, April.
  11. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
  12. Dittus, Peter, 1996. "Why East European banks don't want equity," European Economic Review, Elsevier, vol. 40(3-5), pages 655-662, April.
  13. Caminal, Ramón & Matutes, Carmen, 1997. "Bank Solvency, Market Structure, and Monitoring Incentives," CEPR Discussion Papers 1665, C.E.P.R. Discussion Papers.
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Cited by:
  1. Ogura, Yoshiaki, 2010. "Interbank competition and information production: Evidence from the interest rate difference," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 279-304, April.
  2. Hainz , Christa & Weill , Laurent & Godlewski, Christophe, 2008. "Bank competition and collateral: theory and evidence," Research Discussion Papers 27/2008, Bank of Finland.
  3. 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.
  4. Hainz, Christa, 2004. "Quality of Institutions, Credit Markets and Bankruptcy," Discussion Papers in Economics 388, University of Munich, Department of Economics.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
  10. 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.
  11. 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.

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