Screening, Bidding, And The Loan Market Tightness

Melanie Cao () and Shouyong Shi

No 989, Working Paper from Economics Department, Queen's University

Abstract: Bank loans are more available and cheaper for new and small businesses in the US in areas with highly concentrated banks than in areas with highly competitive banks. We explain this fact by analyzing banks' decisions to screen risky projects and their subsequent competition in loan provisions. It is shown that, by increasing a negative informational externality to an informed winner, an increase in the number of banks in the market can reduce banks' screening probability sufficiently, reduce the number of banks that actively compete in loan provisions and increase the expected loan rate. Policy implications are examined.

Keywords: Screening; Bidding; Loans; Informational externality (search for similar items in EconPapers)
JEL-codes: D44 G21 L15 (search for similar items in EconPapers)
Pages: 46 pages
Date: 1999-02
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_989.pdf First version 1999 (application/pdf)

Related works:
Journal Article: Screening, Bidding, and the Loan Market Tightness* (2001)
Working Paper: Screening, Bidding, and the Loan Market Tightness (2000)
Working Paper: Screening, Bidding, and the Loan Market Tightness (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:989

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