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Agency Cost of Debt and Lending Market Competition: Is there a Relationship?

Listed author(s):
  • Erkki Koskela
  • Rune Stenbacka
Registered author(s):

    We address the question of how lending market competition, measured by the bargaining power of banks, affects the agency costs of debt finance. It is shown that intensified lending market competition will lead to lower lending rates and investment return distributions which are shifted towards lower, but less risky returns. Consequently, it follows that increased lending market competition will reduce the agency cost of debt financing. Hence, our analysis does not lend support to the commonly held view that there would be a trade-off between more intensive lending market competition and higher agency costs of debt finance.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-03/cesifo_wp274.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 274.

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    Date of creation: 2000
    Handle: RePEc:ces:ceswps:_274
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    11. Koskela, Erkki & Stenbacka, Rune, 2000. "Is there a tradeoff between bank competition and financial fragility?," Journal of Banking & Finance, Elsevier, vol. 24(12), pages 1853-1873, December.
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    19. Thakor, Anjan V., 2000. "Relationship Banking," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 3-5, January.
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