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Financing Competitive Asset Bids When Information is Asymmetric: The Role of Collateral as a Signal

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  • Hyde, C.
  • Vercammen, J.
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    Abstract

    In this paper, borrowing agents require capital to finance competitive bids for a single productive asset rather than requiring capital for individual projects. Loan size is no longer effective as a signaling mechanism. Instead, high quality agents will either offer a sufficiently high level of collateral to signal their type or choose to pool with low quality agents. A pooling equilibrium will emerge if the implicit cost of signaling is too high but then high quality borrowers must bid against all borrowers rather than only their own type.

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    Bibliographic Info

    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 662.

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    Length: 30 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:mlb:wpaper:662

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    Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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    Web page: http://www.economics.unimelb.edu.au
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    Related research

    Keywords: CREDIT ; BORROWING ; ASYMETRIC INFORMATION;

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