Screening, Bidding, and the Loan Market Tightness
AbstractBank loans are more available and cheaper for new and small businesses in the US in areas with highly concentrated banks than in areas with highly competitive banks. We explain this fact by analyzing banks' decisions to screen risky projects and their subsequent competition in loan provisions. It is shown that, by increasing a negative informational externality to an informed winner, an increase in the number of banks in the market can reduce banks' screening probability sufficiently, reduce the number of banks that actively compete in loan provisions and increase the expected loan rate. Policy implications are examined.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 989.
Length: 46 pages
Date of creation: Feb 1999
Date of revision:
Screening; Bidding; Loans; Informational externality;
Other versions of this item:
- Melanie Cao & Shouyong Shi, 2000. "Screening, Bidding, and the Loan Market Tightness," Center for Financial Institutions Working Papers 00-09, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Melanie Cao & Shouyong Shi, 1999. "Screening, Bidding, and the Loan Market Tightness," Cahiers de recherche CREFE / CREFE Working Papers 80, CREFE, Université du Québec à Montréal.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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