Estimating Informational Frictions in Sticky Relationships
50 Pages Posted: 8 Dec 2016 Last revised: 9 Oct 2018
Date Written: December 20, 2017
This paper estimates the effects of an informational friction limiting credit reallocation after a shock to banks. 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 identify private information separately from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Applying this approach to the U.S. syndicated corporate loan market, informational frictions seem too small to explain the drop in lending during the recent crisis.
Keywords: Informational frictions, Aggregate effects of credit supply shocks, Banking relationships
JEL Classification: G21, D82, L14
Suggested Citation: Suggested Citation