Bank equity stakes in borrowing firms and credit market competition


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

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Description/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

Item Type: Monograph (Discussion Paper)
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ePrint ID: 33122
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2000Published
Date Deposited: 19 Jul 2006
Last Modified: 16 Apr 2017 22:17
Further Information:Google Scholar
URI: http://eprints.soton.ac.uk/id/eprint/33122

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