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Credit market competition, collateral and firms' finance

Author

Listed:
  • Gabriel Jiménez

    () (Banco de España)

  • Vicente Salas-Fumás

    () (Banco de España
    Universidad de Zaragoza)

  • Jesús Saurina

    () (Banco de España)

Abstract

This paper investigates the relationship between credit market competition and the availability of bank credit for firms of unobserved credit quality when firms pledge collateral to secure the loans. Loan data from the Spanish Credit Register shows that the average credit quality of borrowers that get loans in a provincial market decreases with market concentration (which is shown to be positively correlated with market power) and with the availability of collateral, although the marginal effect of each variable decreases for higher values of the other. We also find that credit lines' interest rates increase with the availability of collateral, but the increase is lower for banks operating in more concentrated credit markets.Therefore market power in credit markets and collateral appear as substitutes to increase the availability of bank finance under asymmetric information.

Suggested Citation

  • Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2006. "Credit market competition, collateral and firms' finance," Working Papers 0612, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0612
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0612e.pdf
    File Function: First version, June 2006
    Download Restriction: no

    References listed on IDEAS

    as
    1. Fabiani, S. & Druant, M. & Hernando, I. & Kwapil, C. & Landau, B. & Loupias, C. & Martins, F. & Mathä, T. & Sabbatini, R. & Stahl, H. & Stockman, A., 2005. "The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence," Working papers 135, Banque de France.
    2. Camacho Maximo & Perez Quiros Gabriel, 2007. "Jump-and-Rest Effect of U.S. Business Cycles," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(4), pages 1-39, December.
    3. J. Ignacio Garcia-Perez & Juan F. Jimeno, 2007. "Public Sector Wage Gaps In Spanish Regions," Manchester School, University of Manchester, vol. 75(4), pages 501-531, July.
    4. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2005. "Dual employment protection legislation: a framework for analysis," Working Papers 0510, Banco de España;Working Papers Homepage.
    5. Enrique Alberola & Luis Molina & Daniel Navia, 2005. "Say you fix, enjoy and relax: the deleterious effect of peg announcements on fiscal discipline," Working Papers 0523, Banco de España;Working Papers Homepage.
    6. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    collateral; competition; asymmetric information; relationship banking;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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