Product market competition and collateralized debt
AbstractThis paper presents a model where bank credit depends upon borrowers.product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this bene.t of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to finance of small and medium Italian firms and find supportive evidence.
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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 238.
Date of creation: Mar 2013
Date of revision: Mar 2013
collateralized loans; product market competition; productive assets resale value;
Find related papers by JEL classification:
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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