Agency Cost of Debt and Lending Market Competition: A Re-Examination

Bank of Finland Discussion Paper No. 12/2000

23 Pages Posted: 25 Jun 2002

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Rune Stenbacka

Hanken School of Economics

Date Written: February 10, 2000

Abstract

We address how lending market competition, measured by banks' bargaining power, affects the agency costs of debt finance. We show that the threshold for obtaining loan finance is independent of the relative bargaining power of the financier. Moreover, intensified lending market competition leads to lower lending rates and to investment return distributions with lower and less risky returns. Hence increased lending market competition reduces the agency cost of debt financing. Our analysis does not support the view that there is a tradeoff between more intensive lending market competition and higher agency costs of debt finance.

Keywords: bank competition, agency cost of debt

JEL Classification: G21, G34, L11

Suggested Citation

Koskela, Erkki and Stenbacka, Rune, Agency Cost of Debt and Lending Market Competition: A Re-Examination (February 10, 2000). Bank of Finland Discussion Paper No. 12/2000. Available at SSRN: https://ssrn.com/abstract=314410 or http://dx.doi.org/10.2139/ssrn.314410

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

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