Screening, Bidding, and the Loan Market Tightness*

Melanie Cao and Shouyong Shi

Review of Finance, 2001, vol. 5, issue 1-2, 21-61

Abstract: Bank loans are more available and cheaper for new and small businesses in the U.S. in concentrated banking areas than in competitive banking areas. We explain this anomaly by analyzing banks' decisions to screen projects and their competition in loan provisions. It is shown that, by exacerbating the winner's curse, an increase in the number of banks can reduce banks' screening probability by so much that the number of banks that actively compete in loan provisions falls and the expected loan rate rises. This is the case when the screening cost is low, which induces all active bidders to be informed. The opposite outcome occurs when the screening cost is high, in which case there are sufficiently many uninformed banks in bidding to attenuate the winner's curse. We also examine the social optimum. JEL classification: G21, D44, L15

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1012626030681 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Screening, Bidding, and the Loan Market Tightness (2000)
Working Paper: Screening, Bidding, and the Loan Market Tightness (1999)
Working Paper: Screening, Bidding, And The Loan Market Tightness (1999)
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:oup:revfin:v:5:y:2001:i:1-2:p:21-61.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Review of Finance is currently edited by Marcin Kacperczyk

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().