Asymmetric Information and Imperfect Competition in Lending Markets

By Gregory S. Crawford, Nicola Pavanini, Fabiano Schivardi. The American Economic Review, 2018

168 citations recorded by the source corpus.

We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects. (JEL D22, D82, G21, G32, L13, L25)

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8a8a69ab9027fb5bfc4c94ddd690c5d59cfe7ccd

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Citations in the corpus

Bank liquidity provision across the firm size distribution (2020, background): “2 Whereas these works 2See for instance Stulz and Johnson (1985); Thakor and Udell (1991); Eisfeldt and Rampini (2009); Rampini and Viswanathan (2010, 2013); Demarzo (2019); Donaldson et al. (2020) on collateral, Flannery (1986); Diamond (1991); Calomiris and Kahn (1991); Diamond (1993); Brunnermeie”