Bargaining with a Bank
58 Pages Posted: 16 Oct 2017 Last revised: 23 Jan 2018
Date Written: January 1, 2018
This paper examines bargaining as a mechanism to resolve information problems. To guide the analysis, I develop a parsimonious model of a credit negotiation between a bank and firms with varying impatience. In equilibrium, impatient firms accept the bank’s offer immediately, while patient firms wait and negotiate price adjustments. I test the empirical predictions using a hand-collected dataset on credit line negotiations. Firms signing the bank’s offer right away draw down their credit line after origination and default more than late signers. Late signers negotiate price adjustments more frequently, and, consistent with the model, these adjustments predict better ex post performance.
Keywords: Bargaining, Financial Contracting
JEL Classification: G21
Suggested Citation: Suggested Citation