Beyhaghi, Mehdi and Mahmoudi, Babak and Mohammadi, Ali (2013): Adverse Selection and Search Frictions in Corporate Loan Contracts.
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Abstract
We provide empirical evidence of both (1) price dispersion and (2) credit rationing in the corporate loan market. We argue that these properties are caused by two factors: an adverse selection resulting from the information asymmetry between lenders and borrowers, and search frictions in matching borrowers with lenders. We develop a model of loan markets in which lenders post an array of heterogeneous contracts, then borrowers tradeoff terms of loan contracts and matching probability between themselves. We show that a unique separating equilibrium exists where each type of borrower applies to a certain type of contract.
Item Type: | MPRA Paper |
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Original Title: | Adverse Selection and Search Frictions in Corporate Loan Contracts |
Language: | English |
Keywords: | loan contract, capital structure, debt heterogeneity, adverse selection, competitive search |
Subjects: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory G - Financial Economics > G2 - Financial Institutions and Services > G20 - General G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill |
Item ID: | 49780 |
Depositing User: | Babak Mahmoudi |
Date Deposited: | 12 Sep 2013 17:38 |
Last Modified: | 27 Sep 2019 08:36 |
References: | Altomonte, Carlo and Tommaso Aquilante (2012) "The EU-EFIGE/Bruegel-unicredit dataset,"Technical report. Bester, Helmut (1985) "Screening vs. rationing in credit markets with imperfect information," The American Economic Review, Vol. 75, No. 4, pp. 850-855. Colla, Paolo, Filippo Ippolito, and Kai Li (2013) "Debt specialization," The Journal of Finance, Forthcoming. Faulkender, Michael and Mitchell A Petersen (2006) "Does the source of capital affect capital structure?" Review of Financial Studies, Vol. 19, No. 1, pp. 45-79. Guerrieri, Veronica, Robert Shimer, and Randall Wright (2010) "Adverse Selection in Competitive Search Equilibrium," Econometrica, Vol. 78, No. 6, pp. 1823-1862. Petrongolo, Barbara and Christopher A Pissarides (2001) "Looking into the black box: A survey of the matching function," Journal of Economic literature, Vol. 39, No. 2, pp. 390-431. Rauh, Joshua D and Amir Sufi (2010) "Capital Structure and Debt Structure," Review of Financial Studies, Vol. 23, No. 12, pp. 4242-4280. Rothschild, Michael and Joseph Stiglitz (1976) "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, pp. 629-649. Stiglitz, Joseph E and Andrew Weiss (1981) "Credit Rationing in Markets with Imperfect Information," The American economic review, Vol. 71, No. 3, pp. 393-410. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/49780 |
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