The Commitment Effect of Choosing the Same Bank
AbstractIn a model where firms use external funds to finance R&D investments, we show that they may prefer to borrow from the same bank, rather than going to competing banks. A monopolist bank will capture more of firms' operating profits. But, these profits will also be higher, since having the same bank serves as a commitment device not to spend too much on R&D. In our model, the latter effect dominates.
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Bibliographic InfoPaper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0110.
Length: 21 pages
Date of creation: May 2001
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