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On the non-exclusivity of loan contracts: an empirical investigation

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On the non-exclusivity of loan contracts : an empirical investigation. / Degryse, Hans ; Ioannidou, Vasso; von Schedvin, Erik.

In: Management Science, Vol. 62, No. 12, 12.2016, p. 3510-3533.

Research output: Contribution to journalJournal articlepeer-review

Harvard

Degryse, H, Ioannidou, V & von Schedvin, E 2016, 'On the non-exclusivity of loan contracts: an empirical investigation', Management Science, vol. 62, no. 12, pp. 3510-3533. https://doi.org/10.1287/mnsc.2015.2277

APA

Degryse, H., Ioannidou, V., & von Schedvin, E. (2016). On the non-exclusivity of loan contracts: an empirical investigation. Management Science, 62(12), 3510-3533. https://doi.org/10.1287/mnsc.2015.2277

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Degryse, Hans ; Ioannidou, Vasso ; von Schedvin, Erik. / On the non-exclusivity of loan contracts : an empirical investigation. In: Management Science. 2016 ; Vol. 62, No. 12. pp. 3510-3533.

Bibtex

@article{d6b7ac0ec6b44364ade9a690a3cda266,
title = "On the non-exclusivity of loan contracts: an empirical investigation",
abstract = "We study how a bank{\textquoteright}s willingness to lend to a previously exclusive firm changes once the firm obtains a loan from another bank (“outside loan”) and breaks an exclusive relationship. Using a difference-in-difference analysis and a setting where outside loans are observable, we document that an outside loan triggers a decrease in the initial bank{\textquoteright}s willingness to lend to the firm i.e., outside loans are strategic substitutes. Consistent with concerns about co-ordination problems and higher indebtedness, we find that this reaction is more pronounced the larger the outside loan and it is muted if the initial bank{\textquoteright}s existing and future loans retain seniority and are protected with valuable collateral. Our results give a benevolent role to transparency enabling banks to mitigate adverse effects from outside loans. The resulting substitute behavior may also act as a stabilizing force in credit markets limiting positive co-movements between lenders, decreasing the possibility of credit freezes and financial crises.",
keywords = "coordination failures, credit freezes, credit rationing, credit supply, debt seniority, floating charge, negative externalities, nonexclusivity, transparency",
author = "Hans Degryse and Vasso Ioannidou and {von Schedvin}, Erik",
year = "2016",
month = dec,
doi = "10.1287/mnsc.2015.2277",
language = "English",
volume = "62",
pages = "3510--3533",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "12",

}

RIS

TY - JOUR

T1 - On the non-exclusivity of loan contracts

T2 - an empirical investigation

AU - Degryse, Hans

AU - Ioannidou, Vasso

AU - von Schedvin, Erik

PY - 2016/12

Y1 - 2016/12

N2 - We study how a bank’s willingness to lend to a previously exclusive firm changes once the firm obtains a loan from another bank (“outside loan”) and breaks an exclusive relationship. Using a difference-in-difference analysis and a setting where outside loans are observable, we document that an outside loan triggers a decrease in the initial bank’s willingness to lend to the firm i.e., outside loans are strategic substitutes. Consistent with concerns about co-ordination problems and higher indebtedness, we find that this reaction is more pronounced the larger the outside loan and it is muted if the initial bank’s existing and future loans retain seniority and are protected with valuable collateral. Our results give a benevolent role to transparency enabling banks to mitigate adverse effects from outside loans. The resulting substitute behavior may also act as a stabilizing force in credit markets limiting positive co-movements between lenders, decreasing the possibility of credit freezes and financial crises.

AB - We study how a bank’s willingness to lend to a previously exclusive firm changes once the firm obtains a loan from another bank (“outside loan”) and breaks an exclusive relationship. Using a difference-in-difference analysis and a setting where outside loans are observable, we document that an outside loan triggers a decrease in the initial bank’s willingness to lend to the firm i.e., outside loans are strategic substitutes. Consistent with concerns about co-ordination problems and higher indebtedness, we find that this reaction is more pronounced the larger the outside loan and it is muted if the initial bank’s existing and future loans retain seniority and are protected with valuable collateral. Our results give a benevolent role to transparency enabling banks to mitigate adverse effects from outside loans. The resulting substitute behavior may also act as a stabilizing force in credit markets limiting positive co-movements between lenders, decreasing the possibility of credit freezes and financial crises.

KW - coordination failures

KW - credit freezes

KW - credit rationing

KW - credit supply

KW - debt seniority

KW - floating charge

KW - negative externalities

KW - nonexclusivity

KW - transparency

U2 - 10.1287/mnsc.2015.2277

DO - 10.1287/mnsc.2015.2277

M3 - Journal article

VL - 62

SP - 3510

EP - 3533

JO - Management Science

JF - Management Science

SN - 0025-1909

IS - 12

ER -