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Asymmetric Information, Bank Lending and Implicit Contracts: Differences between Banks

Listed author(s):
  • Juha-Pekka Niinimäki

    ()

    (University of Turku, Department of Economics, Turku, Finland)

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    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.

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    File URL: http://auco.cuni.cz/mag/article/download/id/166/type/attachment
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    Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal Czech Economic Review.

    Volume (Year): 9 (2015)
    Issue (Month): 2 (December)
    Pages: 074-090

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    Handle: RePEc:fau:aucocz:au2015_074
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    19. Alvis K. Lo, 2014. "Do Declines in Bank Health Affect Borrowers’ Voluntary Disclosures? Evidence from International Propagation of Banking Shocks," Journal of Accounting Research, Wiley Blackwell, vol. 52(2), pages 541-581, 05.
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    24. Juha-Pekka Niinimäki, 2014. "Relationship Lending, Bank Competition and Financial Stability," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 8(3), pages 102-124, December.
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