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Asymmetric Information, Bank Lending and Implicit Contracts: Differences between Banks

Juha-Pekka Niinimäki ()
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Juha-Pekka Niinimäki: University of Turku, Department of Economics, Turku, Finland

Czech Economic Review, 2015, vol. 9, issue 2, 074-090

Abstract: This paper studies asymmetric information on banks, relationship lending and switching costs. According to the classic theory of relationship banking asymmetric information on borrower types causes an informational lock-in by borrowers: good borrowers are tied to their banks. This paper shows that an informational lock-in effect occurs even if borrowers are identical. Asymmetric information on banks generates an informational lock-in for borrowers. A borrower is tied to the initial bank even if it charges higher loan interest. The borrower is not ready to leave the bank and take a risk that the new bank proves to be even worse.

Keywords: Asymmetric information; banking; relationship lending; bank competition; switching costs (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2015
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