Bargaining with a Bank

62 Pages Posted: 29 May 2018 Last revised: 11 Jun 2018

See all articles by Thomas C. Mosk

Thomas C. Mosk

Goethe University Frankfurt - Research Center SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: January 2018

Abstract

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 levels of 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 line of credit 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: Credit lines, Contract terms, Bargaining, Screening

JEL Classification: G21, G32

Suggested Citation

Mosk, Thomas C., Bargaining with a Bank (January 2018). SAFE Working Paper No. 211. Available at SSRN: https://ssrn.com/abstract=3186111 or http://dx.doi.org/10.2139/ssrn.3186111

Thomas C. Mosk (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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