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The Commitment Effect of Choosing the Same Bank


Author Info

  • Marco Haan

    (University of Groningen)

  • Yohanes E. Riyanto

    (National University of Singapore)

  • Linda A. Toolsema

    (University of Groningen)


In 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 Info

Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0110.

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Length: 21 pages
Date of creation: May 2001
Date of revision:
Handle: RePEc:nus:nusewp:wp0110

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