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Agency cost of debt and lending market competition: Is there a relationship?

Author

Listed:
  • Koskela, Erkki
  • Stenbacka, Rune

Abstract

We address the question of how lending market competition, measured by the bargaining power of banks, affects the agency costs of debt finance.It is shown that intensified lending market competition will lead to lower lending rates and investment return distributions which are shifted towards lower, but less risky returns.Consequently, it follows that increased lending market competition will reduce the agency cost of debt financing.Hence, our analysis does not lend support to the commonly held view that there would be a trade-off between more intensive lending market competition and higher agency costs of debt finance.

Suggested Citation

  • Koskela, Erkki & Stenbacka, Rune, 2000. "Agency cost of debt and lending market competition: Is there a relationship?," Bank of Finland Research Discussion Papers 12/2000, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2000_012
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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