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Interbank competition and information production: Evidence from the interest rate difference

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  • Ogura, Yoshiaki

Abstract

In this paper, using firm-level cross-sectional data in the US, we report that interest rates on loans extended by inside banks are significantly lower than those on loans extended by outside banks for younger firms in concentrated loan markets, while such loan rate differences are not clearly observed in competitive loan markets. The analytical model presented in this paper predicts that an inside bank is more likely to quote rates lower than those of outside banks to capture a customer in order to gain time to establish exclusive access to the customer's private information, counting on the consequent future rent from informational advantages over rival banks, if the inside bank intends to acquire private information about the borrower's creditworthiness. In light of this prediction, we conclude that the above empirical finding is consistent with the hypothesis that increased competition discourages banks from collecting borrower-specific private information.

Suggested Citation

  • Ogura, Yoshiaki, 2010. "Interbank competition and information production: Evidence from the interest rate difference," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 279-304, April.
  • Handle: RePEc:eee:jfinin:v:19:y:2010:i:2:p:279-304
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    Citations

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    Cited by:

    1. NEMOTO Tadanobu & OGURA Yoshiaki & WATANABE Wako, 2011. "An Estimation of the Inside Bank Premium," Discussion papers 11067, Research Institute of Economy, Trade and Industry (RIETI).
    2. Luca Papi & Emma Sarno & Alberto Zazzaro, 2017. "The geographical network of bank organizations: issues and evidence for Italy," Chapters,in: Handbook on the Geographies of Money and Finance, chapter 8, pages 156-196 Edward Elgar Publishing.
    3. Nemoto, Tadanobu & Ogura, Yoshiaki & Watanabe, Wako, 2016. "Inside bank premiums as liquidity insurance," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 61-76.
    4. Presbitero, Andrea F. & Zazzaro, Alberto, 2011. "Competition and relationship lending: Friends or foes?," Journal of Financial Intermediation, Elsevier, vol. 20(3), pages 387-413, July.
    5. Djedidi-Kooli, Salima, 2009. "L’accès au financement des PME en France : quel rôle joué par la structure du système bancaire ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8354 edited by Etner, François.
    6. Ogura, Yoshiaki, 2012. "Lending competition and credit availability for new firms: Empirical study with the price cost margin in regional loan markets," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1822-1838.

    More about this item

    Keywords

    G21 L11 L14 Relationship banking Credit market structure Information acquisition;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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