Screening, Bidding, and the Loan Market Tightness

Shouyong Shi () and Melanie Cao ()

No 989, Working Papers from Queen's University, Department of Economics

Abstract: Bank loans are more available and cheaper for new and small businesses in the US in areas with highly concentrated banks than in areas with highly competitive banks. We explain this fact by analyzing banks' decisions to screen risky projects and their subsequent competition in loan provisions. It is shown that, by increasing a negative informational externality to an informed winner, an increase in the number of banks in the market can reduce banks' screening probability sufficiently, reduce the number of banks that actively compete in loan provisions and increase the expected loan rate. Policy implications are examined.

Keywords: Screening; Bidding; Loans; Informational externality (search for similar items in EconPapers)
JEL-codes: G21 D44 L15 (search for similar items in EconPapers)
Date: 1999-02

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http://www.econ.queensu.ca/working_papers/papers/qed_wp_989.pdf First version 1999 (application/pdf)

Related works:
Working Paper: Screening, Bidding, and the Loan Market Tightness (1999)
Working Paper: Screening, Bidding, and the Loan Market Tightness (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:qed:wpaper:989

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