Estimating Informational Frictions in Sticky Relationships

50 Pages Posted: 8 Dec 2016 Last revised: 9 Oct 2018

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Date Written: December 20, 2017

Abstract

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

Darmouni, Olivier, Estimating Informational Frictions in Sticky Relationships (December 20, 2017). Columbia Business School Research Paper No. 17-4. 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 ( email )

3022 Broadway
New York, NY 10027
United States

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