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Banking, Commerce, and Antitrust¤

  • Stefan ARPING

    (University of Lausanne)

We develop a model in order to explore how a bank’s equity stake in a competitor of a borrower affects the financing relationship with the borrower and product market outcomes. The bank’s affiliation with the competitor can give rise to antior pro–competitive effects. Large equity stakes can facilitate anti–competitive conduct. In sharp contrast, small equity stakes are pro–competitive. The reason is that the bank’s equity stake in the competitor hardens the borrower’s budget constraint. This alleviates credit rationing problems and enables the borrower to invest more aggressively. These findings suggest that bank equity holdings in industrial firms have non–monotonic effects on product market competition.

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Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp19.

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Date of creation: May 2002
Date of revision:
Handle: RePEc:fam:rpseri:rp19
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  17. Mathias Dewatripont & Jean Tirole, 1994. "A theory of debt and equity: diversity of securities and manager-shareholder congruence," ULB Institutional Repository 2013/9593, ULB -- Universite Libre de Bruxelles.
  18. João A.C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 14-26.
  19. Shull, Bernard, 1994. "Banking and commerce in the United States," Journal of Banking & Finance, Elsevier, vol. 18(2), pages 255-270, January.
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