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Informed lending as a deterrent to predation

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  • Marquez, Robert

Abstract

Predatory practices have been rationalized by positing some information problem between entrant firms and their financiers. We argue that an effective way to deter product market predation is to obtain credit from an informed source, who can disentangle a firm's expected profitability from its realized profits. Bank finance is often seen as a way of obtaining informed financing. We thus offer a rationale for choosing between bank financing and public debt financing based on its implications for competition in the product market.

Suggested Citation

  • Marquez, Robert, 2010. "Informed lending as a deterrent to predation," Finance Research Letters, Elsevier, vol. 7(4), pages 193-201, December.
    • Handle: RePEc:eee:finlet:v:7:y:2010:i:4:p:193-201
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    1. Li, Yuanhui & Nie, Weiqian & Xiang, Erwei & Djajadikerta, Hadrian Geri, 2018. "Can banks identify firms’ real earnings management? Evidence from China," Finance Research Letters, Elsevier, vol. 25(C), pages 23-29.

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