Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets

Besanko, David; Thakor, Anjan V.

doi:10.2307/2526573

Cited by 790 publications

(482 citation statements)

References 10 publications

Supporting

Mentioning

441

Contrasting

Unclassified

Order By: Relevance

“…Problems of adverse selection and moral hazard prevent the price mechanism to bring about a Walrasian market equilibrium (Stiglitz/Weiss 1981). Credit rationing may be reduced by collateral: it acts as a signaling device, inducing a borrower to reveal his default risk (Bester 1985, Besanko/Thakor 1987, and as an incentive device, providing him with an incentive to exert effort and reveal truthfully the state of his project after having obtained the loan (Bester, 1987(Bester, , 1994. However, collateralization may be costly for both contract partners.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

Financial constraints of ethnic entrepreneurship: evidence from Germany

Bruder

Neuberger

Räthke-Döppner

2011

International Journal of Entrepreneurial Behavior &Amp; Research

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This is the first attempt to test hypotheses about financial constraints of ethnic minority owned businesses in Germany. Using data from a survey among 3,000 ethnic and native entrepreneurs, we examine differences in the financing patterns between both demographic groups. We find that entrepreneurs with a migration background are more likely to be denied credit or to obtain smaller loan amounts than requested. After controlling for observed risk factors and financial relationships as explanatory variables, ethnicity plays no role in explaining differences in the probability of credit rationing. These can be rather explained by the firm's location and characteristics of the bank-customer relationship. Thus, we find no evidence for prejudicial discrimination in the loan market. Terms of use: Documents inJEL Code: G21, G32

show abstract

Section: Theory and Hypothesesmentioning

confidence: 99%

Financial constraints of ethnic entrepreneurship: evidence from Germany

Bruder

Neuberger

Räthke-Döppner

2011

International Journal of Entrepreneurial Behavior &Amp; Research

View full text Add to dashboard Cite

show abstract

“…Our contribution is grounded in the literature on ine¢ ciencies in the credit market by de 1 http://www.fsb.org.uk/News.aspx?loc=pressroom&rec=5742 Meza and Webb (1987), who point out the possibility that adverse selection in credit markets may lead to excessive entry into entrepreneurship due to cross subsidization, quite in contrast with the credit rationing phenomenon emphasized by Stiglitz and Weiss (1981). Ine¢ cient investments may also occur notwithstanding collateral (Bester, 1985(Bester, , 1987Besanko and Thakor, 1987) serving as a signaling device (see Coco, 2000). Most related to our study however are the papers by Stiglitz and Weiss (1992), Coco (1999), de Meza and Webb (1999) and Gruner (2003).…”

Section: Introductionmentioning

confidence: 79%

Unfair credit allocations

Coco

Pignataro

2012

Small Bus Econ

View full text Add to dashboard Cite

We show how asymmetric information and borrowers'heterogeneity in wealth may produce equilibria in which, due to decreasing absolute risk aversion, hard working poor borrowers subsidize richer borrowers. In particular, a model of adverse selection and moral hazard in a competitive credit market is developed with private information on borrowers'wealth. Because of the ambiguous e¤ect of decreasing risk aversion on the willingness to post collateral, both separating and pooling equilibria are possible in principle. Under separation the poor borrowers bear the cost of separation in terms of excessive risk taking. In a more likely pooling equilibrium poor hard-working borrowers subsidize richer ones.

show abstract

“…Specifically, when the quality of the borrower is unobservable, lenders prefer to offer a list of contract terms, including the pledge of collateral, able to self-select firms according to their risk perception. In equilibrium, low-quality applicants choose unsecured debt with higher interest rates while high-quality applicants self-select into secured debt with lower risk premiums (Bester 1985, 1987, Besanko and Thakor 1987a, 1987b, Chan and Thakor 1987. On the other hand, the ex post theories indicate that it is most probable that observably more risky borrowers are required to pledge collateral.…”

Section: Literature Reviewmentioning

confidence: 99%

Relationship Lending and Credit Quality

2013

View full text Add to dashboard Cite

We analyze if the relationship lending reduces the borrower's probability of borrowers' default and if this beneficial effect operates also for those borrowers who are more exposed to the economic downturn. By using unique, matched data of 43,000 firms and their lending institutions between 2008 and 2010, we document that the probability that a firm becomes distressed decreases when the creditor concentration is high and the duration of bank-firm relationships is long. While these results seem to support the beneficial effect of the relationship lending practices, we note that the organizational distance of banks and collateral also matters both as determinants of loan distress and as determinants of loan downgrading. The results are stronger for smaller firms.JEL classification: G21

show abstract

Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets

Cited by 790 publications

References 10 publications

Financial constraints of ethnic entrepreneurship: evidence from Germany

Financial constraints of ethnic entrepreneurship: evidence from Germany

Unfair credit allocations

Relationship Lending and Credit Quality

Contact Info

Product

Resources

About