Informational Frictions and the Credit Crunch

46 Pages Posted: 8 Dec 2016 Last revised: 25 Feb 2020

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School, Finance

Date Written: June 25, 2019

Abstract

In this paper, I estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007-2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Quantitatively, these informational frictions appears to be too small to explain the credit crunch in the U.S. syndicated corporate loan market.

Keywords: Informational frictions, Aggregate effects of credit supply shocks, Banking relationships

JEL Classification: G21, D82, L14

Suggested Citation

Darmouni, Olivier, Informational Frictions and the Credit Crunch (June 25, 2019). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2882659 or http://dx.doi.org/10.2139/ssrn.2882659

Olivier Darmouni (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

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