Banking, Commerce, and Antitrust¤

Stefan Arping

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: We develop a model in order to explore how a bank’s equity stake in a competitor of a borrower affects the financing relationship with the borrower and product market outcomes. The bank’s affiliation with the competitor can give rise to antior pro–competitive effects. Large equity stakes can facilitate anti–competitive conduct. In sharp contrast, small equity stakes are pro–competitive. The reason is that the bank’s equity stake in the competitor hardens the borrower’s budget constraint. This alleviates credit rationing problems and enables the borrower to invest more aggressively. These findings suggest that bank equity holdings in industrial firms have non–monotonic effects on product market competition.

Date: 2002-05
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Citations: View citations in EconPapers (3)

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Working Paper: Banking, Commerce, and Antitrust (2002)
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