On the Non-Exclusivity of Loan Contracts: An Empirical Investigation
KU Leuven - Faculty of Business and Economics (FBE); CentER, European Banking Center (EBC), TILEC, Tilburg University; Centre for Economic Policy Research (CEPR)
CentER, European Banking Center (EBC), Tilburg University
Erik L. Von Schedvin
Tilburg University; Tilburg University - European Banking Center; Sveriges Riksbank
A string of theoretical papers shows that the non-exclusivity of credit contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect the supply of credit. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its credit supply when a borrower obtains a loan at another creditor (an “outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial creditor’s existing and future loans retain seniority over the outside loans and are secured with valuable collateral.
Number of Pages in PDF File: 37
Keywords: non-exclusivity, contractual externalities, credit supply, debt seniority
JEL Classification: G21, G34, L13, L14working papers series
Date posted: March 27, 2012
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