The Effect of Credit Market Competition on Lending Relationships

Mitchell Petersen and Raghuram Rajan

No 4921, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides a simple model showing that the extent of competition in credit markets is important in determining the value of lending relationships. Creditors are more likely to finance credit constrained firms when credit markets are concentrated because it is easier for these creditors to internalize the benefits of assisting the firms. The model has implications about the availability and the price of credit as firms age in different markets. The paper offers evidence for these implications from small business data. It concludes with conjectures on the costs and benefits of liberalizing financial markets, as well as the timing of such reforms.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 1994-11
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (67)

Published as Quarterly Journal of Economics, May 1995, pp. 407-443.

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Journal Article: The Effect of Credit Market Competition on Lending Relationships (1995)
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