Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212118
Authors: 
Hainz, Christa
Weill, Laurent
Godlewski, Christophe J.
Year of Publication: 
2008
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 27/2008
Abstract: 
We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical model incorporating information asymmetries in a spatial competition framework where banks choose between screening the borrower and asking for collateral. We show that presence of collateral is more likely when bank competition is low. We then test this prediction empirically on a sample of bank loans from 70 countries. We estimate logit models where the presence of collateral is regressed on bank competition, measured by the Lerner index. Our empirical tests corroborate the theoretical predictions that bank competition reduces the use of collateral. These findings survive several robustness checks.
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-475-6
Document Type: 
Working Paper

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