Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209855 
Year of Publication: 
2005
Series/Report no.: 
Working Paper No. 2005/8
Publisher: 
Norges Bank, Oslo
Abstract: 
We introduce a model analyzing how asymmetric information problems in a bank-loan market may evolve over the age of a borrowing firm. The model predicts a life-cycle pattern for banks' interest rate markup. Young firms pay a low or negative markup, thereafter the markup increases until it falls for old firms. Furthermore, the pattern of the life-cycle depends on the informational advantage of the inside bank and when more dispersed borrower information yields fiercer bank competition. By applying a new measure of the informational advantage of inside banks and a large sample of small Norwegian firms, we find empirical support for the predicted markup pattern. We disentangle effects of asymmetric information (Akerlof effect) from effects of a concentrated banking market (Herfindahl effect). Our results indicate that the interest rate markups are not influenced by bank market concentration.
Subjects: 
banking
risk-pricing
lock-in
JEL: 
G21
L15
Persistent Identifier of the first edition: 
ISBN: 
82-7553-315-5
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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