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Bank Competition and Collateral: Theory and Evidence

Christa Hainz, Laurent Weill () and Christophe Godlewski ()

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical model incorporating information asymmetries in a spatial competition framework where 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.

Keywords: Collateral; Bank Competition; Asymmetric information. (search for similar items in EconPapers)
JEL-codes: G21 D43 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-bec, nep-com, nep-cta and nep-ure
Date: 2008
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Related works:
Journal Article: Bank Competition and Collateral: Theory and Evidence (2013) Downloads
Working Paper: Bank competition and collateral: theory and evidence (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2008-19

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