On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies

Monika Schnitzer ()

Journal of Institutional and Theoretical Economics (JITE), 1999, vol. 155, issue 1, 22-

Abstract: Banks play a central role in financing and monitoring firms in transition economies. We study how bank competition affects the efficiency of the credit allocation, the monitoring of firms, and the firms' restructuring effort. In our model, banks compete to finance an investment project with uncertain return. By screening the firm, a bank learns about its profitability. Surprisingly, we find that an increase in bank competition need not reduce a bank's screening incentives even though it lowers its expected profits. Furthermore, competition has a positive impact on the firm's restructuring effort. This suggests a positive role for bank competition in transition economies.

JEL-codes: D43 G21 G34 L13 P31 P34 (search for similar items in EconPapers)
Date: 1999
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Related works:
Working Paper: On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies (1999)
Working Paper: On the role of bank competition for corporate finance and corporate control in transition economies (1999)
Working Paper: On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies (1998)
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