Logo
Munich Personal RePEc Archive

Adverse Selection and Search Frictions in Corporate Loan Contracts

Beyhaghi, Mehdi and Mahmoudi, Babak and Mohammadi, Ali (2013): Adverse Selection and Search Frictions in Corporate Loan Contracts.

This is the latest version of this item.

[thumbnail of MPRA_paper_49780.pdf]
Preview
PDF
MPRA_paper_49780.pdf

Download (325kB) | Preview

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.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.