The banking firm: the role of signaling with collaterals

Volker Bieta, Udo Broll and Wilfried Siebe

No 04/08, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: In this paper we challenge basic results of signaling models. In our banking model each project of a borrower is described by a continuous density of outcomes. Different density functions are classified according to second stochastisch dominance. Combining these features we find that in a banking model collateral is no longer in a position to signal the degree of riskiness of the borrower to the lender. In most cases the equilibrium is a pooling equilibrium.

Keywords: Signaling; collateral; perfect Bayesian equilibrium (search for similar items in EconPapers)
JEL-codes: D8 G20 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuddps:0408

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