On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies

CEPR Discussion Paper Series Number 2013

Posted: 12 Dec 1998

See all articles by Monika Schnitzer

Monika Schnitzer

University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 1998

Abstract

Banks play a central role in financing and monitoring firms in transition economies. This study examines how bank competition affects the efficiency of credit allocation; monitoring of firms; and the firms' restructuring effort. In our model, banks compete to finance an investment project with uncertain return. By screening the firm a bank learns about its profitability. Surprisingly, it is found that an increase in bank competition need not reduce a bank's screening incentive even though it lowers its expected profits. Furthermore, competition has a positive impact on the firms restructuring efforts. This suggests a positive role for bank competition in transition economies.

JEL Classification: D43. G21. G34. L13. P31

Suggested Citation

Schnitzer, Monika, On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies (November 1998). CEPR Discussion Paper Series Number 2013. Available at SSRN: https://ssrn.com/abstract=141515

Monika Schnitzer (Contact Author)

University of Munich - Department of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany
+49 89 2180 2217 (Phone)
+49 89 2180 2767 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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