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Bank equity stakes in borrowing firms and credit market competition

Bank equity stakes in borrowing firms and credit market competition
Bank equity stakes in borrowing firms and credit market competition
In this paper we analyse the effect of banks holding equity stakes in borrowing firms on the equilibrium level of interest rates and on the tendency of the borrowing firm to establish tighter links with the shareholding bank. Equity claims are defined as rights to receive dividend payments as well as private information about the firm. By modeling competition as an asymmetric common value auction, we show that when one of the competing banks in the credit market holds an equity claim in the firm, the equilibrium expected cost of debt increases with the size of the equity stake and the firm tends to concentrate his credit relationships around the shareholding bank
22
University of Southampton
Rapisarda, Grazia
9db9e643-d7d7-47ac-86b8-587b42bddb58
Rapisarda, Grazia
9db9e643-d7d7-47ac-86b8-587b42bddb58

Rapisarda, Grazia (2000) Bank equity stakes in borrowing firms and credit market competition (Discussion Papers in Economics and Econometrics, 22) Southampton, UK. University of Southampton 26pp.

Record type: Monograph (Discussion Paper)

Abstract

In this paper we analyse the effect of banks holding equity stakes in borrowing firms on the equilibrium level of interest rates and on the tendency of the borrowing firm to establish tighter links with the shareholding bank. Equity claims are defined as rights to receive dividend payments as well as private information about the firm. By modeling competition as an asymmetric common value auction, we show that when one of the competing banks in the credit market holds an equity claim in the firm, the equilibrium expected cost of debt increases with the size of the equity stake and the firm tends to concentrate his credit relationships around the shareholding bank

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Published date: 2000

Identifiers

Local EPrints ID: 33122
URI: http://eprints.soton.ac.uk/id/eprint/33122
PURE UUID: a5d5aa43-f056-43fa-bac1-2c55050f5f99

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Date deposited: 19 Jul 2006
Last modified: 15 Mar 2024 07:42

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Contributors

Author: Grazia Rapisarda

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