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Costly information, entry, and credit access

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  • Gormley, Todd A.

Abstract

Using a theoretical model that incorporates asymmetric information and differing comparative advantages among lenders, this paper analyzes the impact of lender entry on credit access and aggregate net output. The model shows that lender entry has the potential to create a segmented market that increases credit access for those firms targeted by the new lenders but potentially reduces credit access for all other firms. The overall impact on net output depends on the distribution of firms, the relative costs of lenders, and the cost of acquiring information. The model provides new insights into the evidence regarding foreign lenders' entry into emerging markets.

Suggested Citation

  • Gormley, Todd A., 2014. "Costly information, entry, and credit access," Journal of Economic Theory, Elsevier, vol. 154(C), pages 633-667.
    • Handle: RePEc:eee:jetheo:v:154:y:2014:i:c:p:633-667
    DOI: 10.1016/j.jet.2014.06.003
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    4. Gritli, Mohamed Ilyes & Rey, Serge, 2019. "Compte capital et développement financier en Tunisie : Causalité et relation de long terme," L'Actualité Economique, Société Canadienne de Science Economique, vol. 95(4), pages 405-428, Décembre.
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    8. Leslie Sheng Shen, 2021. "Global Banking and Firm Financing: A Double Adverse Selection Channel of International Transmission," International Finance Discussion Papers 1325, Board of Governors of the Federal Reserve System (U.S.).
    9. Pu Liu & Yingying Shao & Yiwen Gu, 2017. "Bank Structure and Liquidity Shocks: Evidence from Emerging Markets During the 2008 Financial Crisis," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-25, September.
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    More about this item

    Keywords

    Asymmetric information; Competition; Credit; Financial liberalization;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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