Journal of Finance Vol. 45 No. 5 1990
Product Market Imperfections and Loan Commitments.
Abstract
The author shows, in a model of competitive banks, that the characteristics of loan contracts are affected by product market imperfections in the borrower's industry. A bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and, thus, dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank. While it is individually rational for a firm to obtain a loan commitment, all the firms in that industry taken together are made worse off by the existence of loan commitments.
- Volume
- 45
- Issue
- 5
- Pages
- 1641-53
- Sources
- bibtex:phds-export.bib