Collateral and competition
The authors examine the effects of changes in competitive conditions on the structure of loan contracts. In particular, they present conditions in which greater loan market competition reduces the stringency of contractual collateral requirements, a prediction that is consistent with anecdotal evidence from loan markets. The authors also analyze the interaction between the degree of competition and the efficiency of contractual renegotiation. Insufficiently competitive markets may lead to bargaining difficulties that reduce the efficiency of renegotiable contracts. At low levels of competition negotiable contracts remain feasible only if collateral levels are inefficiently low.
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"Debt covenants and renegotiation,"
90-21, Federal Reserve Bank of Philadelphia.
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- Robert Hauswald & Robert Marquez, 2003. "Information Technology and Financial Services Competition," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 921-948, July.
- Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
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