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On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

  • Degryse, Hans

    ()

    (Department of Finance)

  • Ioannidou , Vasso

    ()

    (Department of Fin)

  • von Schedvin, Erik

    ()

    (Research Department, Central Bank of Sweden)

A string of theoretical papers shows that the non-exclusivity of credit contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect the supply of credit. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its credit supply when a borrower obtains a loan at another creditor (an “outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial creditor’s existing and future loans retain seniority over the outside loans and are secured with valuable collateral.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2012/rap_wp258_120224.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 258.

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Length: 42 pages
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:hhs:rbnkwp:0258
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Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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