Life-cycle patterns of interest rate markups in small firm finance

Moshe Kim, Eirik Kristiansen and Bent Vale

No 2007/04, Working Paper from Norges Bank

Abstract: We derive empirical implications from a stylized theoretical model of bankborrower relationships. Banks’ interest rate markups are predicted to follow a life-cycle pattern over the borrowing firms’ age. Due to endogenous bank monitoring by competing banks, borrowing firms initially face a low markup, thereafter an increasing markup due to informatonal lock-in until it falls for older firms when lock-in is resolved. By applying a large sample of small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric information problems have a more pronounced life-cycle pattern of interest rate markups. Additionally, we examine the effects of concentrated banking markets on interest markups. Results indicate that markups are mainly driven by asymmetric information problems and not by concentration. However, we find weak evidence that bank market concentration matters for old firms.

Keywords: Banking; loan-pricing; lock-in; asymmetric information; competition (search for similar items in EconPapers)
JEL-codes: G21 L15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2007-09-11
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn and nep-com
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.norges-bank.no/en/news-events/news-pub ... apers/2007/WP-20074/

Related works:
Journal Article: Life‐Cycle Patterns of Interest‐Rate Mark‐Ups in Small‐Firm Finance (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2007_04

Access Statistics for this paper

More papers in Working Paper from Norges Bank Contact information at EDIRC.
Bibliographic data for series maintained by ().