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Product market competition and collateralized debt

  • Vittoria Cerasi
  • Alessandro Fedele
  • Raffaele Miniaci

This paper presents a model where bank credit depends upon borrowers.product market structure. We show that a larger number of competitors in the industry may increase credit availability by enhancing the resale value of the collateralized productive assets. We also study how this bene.t of competition is affected by the existence of outsiders willing to bid for the collateralized productive assets of the insiders. Our model encompasses the standard case of Cournot competition either when the default probability goes to zero or when there are multiple outsiders bidding for the productive assets. We test the empirical implications of the theoretical analysis exploiting information on the access to finance of small and medium Italian firms and find supportive evidence.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper238.pdf
File Function: First version, 2013
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 238.

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Length: 31
Date of creation: Mar 2013
Date of revision: Mar 2013
Handle: RePEc:mib:wpaper:238
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  1. Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Cerasi Vittoria & Fedele Alessandro, 2011. "Does Product Market Competition Increase Credit Availability?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-27, July.
  3. Massimo Colombo & Luca Grilli, 2007. "Funding Gaps? Access To Bank Loans By High-Tech Start-Ups," Small Business Economics, Springer, vol. 29(1), pages 25-46, June.
  4. Benmelech, Efraim & Bergman, Nittai K., 2009. "Collateral pricing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 339-360, March.
  5. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  6. Cerasi, Vittoria & Chizzolini, Barbara & Ivaldi, Marc, 2009. "The Impact of Mergers on the Degree of Competition in the Banking Industry," TSE Working Papers 09-113, Toulouse School of Economics (TSE), revised 07 Jun 2012.
  7. Efraim Benmelech & Nittai K. Bergman, 2010. "Bankruptcy and the Collateral Channel," NBER Working Papers 15708, National Bureau of Economic Research, Inc.
  8. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  9. Almeida, Heitor & Campello, Murillo & Hackbarth, Dirk, 2011. "Liquidity mergers," Journal of Financial Economics, Elsevier, vol. 102(3), pages 526-558.
  10. Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.
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