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| Author: | Inderst, R. Mueller, H.M. |
| Title: | A lender-based theory of collateral |
| Journal: | Journal of Financial Economics
2007 : JUN, VOL. 84:3, p. 826-859 |
| Index terms: | theories loans markets competition information |
| Freeterms: | collateral relationship lending |
| Language: | eng |
| Abstract: | This study deals with an imperfectly competitive loan market a local relationship lender (hereafter as: l-lndr.) has an information advantage vis-a-vis distant transaction lenders. The l-lndr. inefficiently rejects marginally profitable projects due to the transaction lenders' actions. Collateral mitigates the inefficiency by increasing the l-lndr's payoff from precisely those marginally profitable projects. The model predicts among others that, controlling for observable borrower risk, collateralized loans are more likely to default ex-post, which is consistent with the empirical evidence etc. |
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