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Bargaining with a bank

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  • Mosk, Thomas

Abstract

This paper examines bargaining as a mechanism to resolve information problems. To guide the analysis, I develop a parsimonious model of a credit negotiation between a bank and firms with varying levels of impatience. In equilibrium, impatient firms accept the bank's offer immediately, while patient firms wait and negotiate price adjustments. I test the empirical predictions using a hand-collected dataset on credit line negotiations. Firms signing the bank's offer right away draw down their line of credit after origination and default more than late signers. Late signers negotiate price adjustments more frequently, and, consistent with the model, these adjustments predict better ex post performance.

Suggested Citation

  • Mosk, Thomas, 2018. "Bargaining with a bank," SAFE Working Paper Series 211, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:211
    DOI: 10.2139/ssrn.3186111
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    References listed on IDEAS

    as
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    Cited by:

    1. Ioannidou, Vasso & Pavanini, Nicola & Peng, Yushi, 2022. "Collateral and asymmetric information in lending markets," Journal of Financial Economics, Elsevier, vol. 144(1), pages 93-121.

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    More about this item

    Keywords

    Credit lines; Contract terms; Bargaining; Screening;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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