Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209857 
Year of Publication: 
2005
Series/Report no.: 
Working Paper No. 2005/10
Publisher: 
Norges Bank, Oslo
Abstract: 
Firms choose debt structure and competing banks choose monitoring intensity. Monitoring improves credit allocation, but creates informational lock-in effects in bank-borrower relationships. In a competitive credit market, banks dissipate anticipated profit from serving locked-in borrowers subsequently revealed to the bank as good to attract new borrowers with unknown credit quality. Consequently, banks' lending strategies result in cross-subsidies from good to bad borrowers. We investigate how firms' choice of debt structure interacts with the cross-subsidies inherent in banks' lending strategies. The analysis sheds light on how dynamic bank competition determines monitoring intensity, seniority, and maturity structure in bank dependent industries.
Subjects: 
corporate debt structure
bank lending
lock-in effects
JEL: 
D82
G32
G21
L14
Persistent Identifier of the first edition: 
ISBN: 
82-7553-325-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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