Bank Competition and Information Production

41 Pages Posted: 5 Feb 2020

See all articles by Filippo De Marco

Filippo De Marco

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Silvio Petriconi

Bocconi University; IGIER

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 2020

Abstract

We show that competition adversely affects the "specialness" of bank lending. In particular, we observe that the positive abnormal return on the borrowing firm's stock after the announcement of a bank loan is reduced in US states that deregulate interstate branching. The negative effect of competition on the value of bank loans is present only for ex-ante opaque firms (i.e., firms with few tangible assets and bank-dependent borrowers) and for banks that presumably rely more on "soft" information (i.e., small banks). Moreover, we find that the probability of a covenant violation in a syndicated deal and charge-off rates on small business loans are higher in deregulated states. Our results suggest that competition decreases loan quality because it reduces banks' incentives to invest in information.

Keywords: asymmetric information; competition; bank deregulation; loan announcement returns

JEL Classification: G21, G28

Suggested Citation

De Marco, Filippo and Petriconi, Silvio, Bank Competition and Information Production (January 23, 2020). BAFFI CAREFIN Centre Research Paper No. 2020-130. Available at SSRN: https://ssrn.com/abstract=3531557 or http://dx.doi.org/10.2139/ssrn.3531557

Filippo De Marco (Contact Author)

Bocconi University - Department of Finance ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Silvio Petriconi

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://silviopetriconi.github.io

IGIER ( email )

Via Roentgen 1
Milan, 20136
Italy

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