IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Bank Competition and Collateral: Theory and Evidence

Listed author(s):
  • Christa Hainz

    ()

    (University of Munich)

  • Laurent Weill

    ()

    (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)

  • Christophe J. Godlewski

    ()

    (Laboratoire de Recherche en Gestion et Economie, Université Louis Pasteur)

We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical model incorporating information asymmetries in a spatial competition framework where banks choose between screening the borrower and asking for collateral. We show that the presence of collateral is more likely when bank competition is low. We then test this prediction empirically on a sample of bank loans from 70 countries. We perform logit regressions of the presence of collateral on bank competition, measured by the Lerner index. Our empirical tests corroborate the theoretical predictions that bank competition reduces the presence of collateral. These findings survive several robustness checks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ifs.u-strasbg.fr/large/publications/2008/2008-19.pdf
Download Restriction: no

Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2008-19.

as
in new window

Length:
Date of creation: 2008
Handle: RePEc:lar:wpaper:2008-19
Contact details of provider: Postal:
61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex

Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Degryse, H.A. & Ongena, S., 2003. "Distance, Lending Relationships, and Competition," Discussion Paper 2003-123, Tilburg University, Center for Economic Research.
  2. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, "undated". "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  4. Schnitzer, Monika, 1999. "On the role of bank competition for corporate finance and corporate control in transition economies," Munich Reprints in Economics 19899, University of Munich, Department of Economics.
  5. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
  6. Inderst, Roman & Mueller, Holger M, 2006. "A Lender-Based Theory of Collateral," CEPR Discussion Papers 5695, C.E.P.R. Discussion Papers.
  7. Maudos, Joaquin & de Guevara, Juan Fernandez, 2007. "The cost of market power in banking: Social welfare loss vs. cost inefficiency," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2103-2125, July.
  8. Degryse, Hans & Masschelein, Nancy & Mitchell, Janet, 2005. "SMEs and Bank Lending Relationships: The Impact of Mergers," CEPR Discussion Papers 5061, C.E.P.R. Discussion Papers.
  9. Gabriel Jiménez & Jesús Saurina, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Working Papers 0414, Banco de España;Working Papers Homepage.
  10. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
  11. Mitchell Berlin & Alexander W. Butler, 2002. "Collateral and competition," Working Papers 02-22, Federal Reserve Bank of Philadelphia.
  12. Oliver, Alfredo Martin & Fumas, Vicente Salas & Saurina, Jesus, 2006. "Risk premium and market power in credit markets," Economics Letters, Elsevier, vol. 93(3), pages 450-456, December.
  13. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
  14. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
  15. Thorsten Beck & Ross Levine, 2002. "Stock Markets, Banks, and Growth: Panel Evidence," NBER Working Papers 9082, National Bureau of Economic Research, Inc.
  16. Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
  17. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  18. Allen Berger & Leora Klapper & Rima Turk-Ariss, 2009. "Bank Competition and Financial Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(2), pages 99-118, April.
  19. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-452, March.
  20. Sumit Agarwal & Robert Hauswald, 2007. "Distance and information asymmetries in lending decisions," Proceedings 1052, Federal Reserve Bank of Chicago.
  21. Christophe Godlewski & Laurent Weill, 2011. "Does Collateral Help Mitigate Adverse Selection? A Cross-Country Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(1), pages 49-78, October.
  22. Dahiya, Sandeep & John, Kose & Puri, Manju & Ramirez, Gabriel, 2003. "Debtor-in-possession financing and bankruptcy resolution: Empirical evidence," Journal of Financial Economics, Elsevier, vol. 69(1), pages 259-280, July.
  23. Jun Qian & Philip E. Strahan, 2007. "How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans," Journal of Finance, American Finance Association, vol. 62(6), pages 2803-2834, December.
  24. Gabriel Jiménez & Vicente Salas & Jesús Saurina, 2004. "Determinants of collateral," Working Papers 0420, Banco de España;Working Papers Homepage.
  25. Benjamin C. Esty, 2001. "Structuring Loan Syndicates: A Case Study Of The Hong Kong Disneyland Project Loan," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(3), pages 80-95.
  26. Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Maksimovic, Vojislav, 2006. "The determinants of financing obstacles," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 932-952, October.
  27. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, 04.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lar:wpaper:2008-19. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.