Credit Decisions and Adverse Selection: An Empirical Study of Banking Behavior

36 Pages Posted: 2 Nov 2000

See all articles by Jean-Christophe Statnik

Jean-Christophe Statnik

University of Lille II - University of Lille LSMRC & ISA

Eric de Bodt

NHH-Caltech

Frederic Lobez

University of Lille II - GERME Research Center

Date Written: July 2000

Abstract

The purpose of this work is to establish what bank strategies in fixing the credit conditions are in an asymmetric information framework. In order to do this, we use a set of 8646 observations of Belgian small and medium sized businesses. The numerous empirical tests realized seem to indicate that banks do not use separating contracts to distinguish risks in a given population. The results of the tests on the use of pooling contracts are more ambiguous although it is shown that the charged rates do not represent correctly the future risk of borrowers. However, the study allows us to conclude that banks use a gradual acquisition strategy within the context of their customer relationships. In parallel, we bring to the fore the monopoly power of banks and the essential role of credit guarantee.

Keywords: Contract theory, credit decision, customer relationships, adverse selection

JEL Classification: G21, G32

Suggested Citation

Statnik, Jean-Christophe and de Bodt, Eric and Lobez, Frederic, Credit Decisions and Adverse Selection: An Empirical Study of Banking Behavior (July 2000). EFMA 2000 Athens. Available at SSRN: https://ssrn.com/abstract=244555 or http://dx.doi.org/10.2139/ssrn.244555

Jean-Christophe Statnik (Contact Author)

University of Lille II - University of Lille LSMRC & ISA ( email )

1, rue de Mulhouse
Lille, 59000
France

Eric De Bodt

NHH-Caltech ( email )

18B AVENUE BECHET
Kraainem, 1950
Belgium
+32 475 24 01 69 (Phone)

HOME PAGE: http://www.edebodt.eu

Frederic Lobez

University of Lille II - GERME Research Center ( email )

1, Place Deliote BP 381
Lille, 59000
France
03 20 99 74 75 (Phone)
03-20-90-77-02 (Fax)

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