Competition and favoritism in bank loan markets

Hua Cheng, Xue Li, Yan Dong () and Shusen Qi

Pacific-Basin Finance Journal, 2020, vol. 59, issue C

Abstract: This paper shows that compared to average-looking borrowers, good-looking borrowers have a loan approval rate which is 4 percentage points higher, whereas plain-looking borrowers pay a significantly higher interest rate (1 percentage point higher). However, this beauty premium only exists in concentrated markets where banks have enough market power to discriminate against the plain-looking borrowers or to show favor towards the good-looking. Once competition intensifies, the beauty premium disappears. Therefore, promoting banking market competition could considerably enhance the efficient allocation of credit by mitigating taste-based favoritism.

Keywords: Market structure; Bank loan; Favoritism; Beauty (search for similar items in EconPapers)
JEL-codes: G21 J70 L13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X19300824
Full text for ScienceDirect subscribers only

Related works:
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:eee:pacfin:v:59:y:2020:i:c:s0927538x19300824

DOI: 10.1016/j.pacfin.2019.101214

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().