Bank Competition and Collateral: Theory and Evidence
Laurent Weill () and
Christophe Godlewski ()
Journal of Financial Services Research, 2013, vol. 44, issue 2, 131-148
We investigate the impact of bank competition on the use of collateral in loan contracts. We analyze asymmetric information about the borrowers’ type in a Salop model in which banks choose between screening the borrower and asking for collateral. We show that the presence of collateral is more likely when bank competition is low. We then test this prediction empirically on a sample of bank loans from 70 countries. We perform logit regressions of the presence of collateral on bank competition, measured by the Lerner index. Our empirical tests corroborate the theoretical predictions that bank competition reduces the presence of collateral. These findings survive several robustness checks. Copyright Springer Science+Business Media, LLC 2013
Keywords: Collateral; Bank competition; Asymmetric information; G21; D43; D82 (search for similar items in EconPapers)
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Working Paper: Bank competition and collateral: theory and evidence (2008)
Working Paper: Bank Competition and Collateral: Theory and Evidence (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:44:y:2013:i:2:p:131-148
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