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Industry ownership of banks and credit market competition

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  • Tröge, Michael

Abstract

This paper analyzes the effect of bank participation in the equity of a firm on the competitiveness of the credit market. Using an auction model of bank competition it is shown that an equity stake of one bank is increasing its market power in the market for credits to this firms. The share-owning bank provides credit more often, its profit and the average interest rate increases. If several banks own symmetric stakes, the interest rate decreases. However, if one bank owns an equity stake, no other bank has incentives to own equity of this firm.

Suggested Citation

  • Tröge, Michael, 1997. "Industry ownership of banks and credit market competition," Discussion Papers, Research Unit: Market Dynamics FS IV 97-36, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbmdy:fsiv9736
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