On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

Abstract

Credit contracts are non-exclusive. A string of theoretical papers shows that nonexclusivity generates important negative contractual externalities. Employing a unique dataset, we identify how the contractual externality stemming from the non-exclusivity of credit contracts affects credit supply. In particular, using internal information on a creditor's willingness to lend, we find that a creditor reduces its loan supply when a borrower initiates a loan at another creditor. Consistent with the theoretical literature on contractual externalities, the effect is more pronounced the larger the loans from the other creditor. We also find that the initial creditor's willingness to lend does not change if its existing and future loans retain seniority over the other creditors' loans and are secured with assets whose value is high and stable over time.JEL Classification Numbers: G21, G34, L13, L14.

Consumer Credit: Too Much or Too Little (or Just Right)?

“…Another possibility in credit markets is that nonexclusive contracting generates negative externalities wherein a marginal dollar lent to a consumer by Lender A reduces the likelihood that the marginal dollar lent to the same consumer by Lender B gets repaid (Degryse, Ioannidou, and von Schedvin 2012). This produces what are variously labeled common pool, common agency, and/or coordination problems that have been the subject of extensive study in several other literatures (Goldstein and Razin 2013), and that may have counter-intuitive solutions (Hertzberg, Liberti, and Paravisini 2011).…”

Collateralization, Bank Loan Rates, and Monitoring

“…With this data set Degryse, Ioannidou, and Von Schedvin () investigate the nonexclusivity of Swedish loan contracts.…”

Trade Credit and the Propagation of Corporate Failure: An Empirical Analysis

“…In this context it is also relevant to consider bank lines of credit. One of the largest Swedish retail banks display commited-credit-lines-to-assets averaging 15 percent and drawn-credit-lines-to-assets averaging 6 percent for the period 2003 to 2008, seeDegryse, Ioannidou, and von Schedvin (2012) for details on that data set. Su… (2009) report very similar numbers for a sample of US …rms: 16 percent for committed-credit-lines-to-assets and 6 percent for drawn-credit-lines-to-assets.…”