Asymmetric Information, Bank Lending and Implicit Contracts: Differences between Banks
This paper studies asymmetric information on banks, relationship lending and switching costs. According to the classic theory of relationship banking asymmetric information on borrower types causes an informational lock-in by borrowers: good borrowers are tied to their banks. This paper shows that an informational lock-in effect occurs even if borrowers are identical. Asymmetric information on banks generates an informational lock-in for borrowers. A borrower is tied to the initial bank even if it charges higher loan interest. The borrower is not ready to leave the bank and take a risk that the new bank proves to be even worse.
Volume (Year): 9 (2015)
Issue (Month): 2 (December)
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