Asymmetric Information, Bank Lending, and Implicit Contracts: The Winner's Curse

Financial Research Letters 1, 2004, 11-23

18 Pages Posted: 16 Apr 2020

See all articles by Ernst-Ludwig von Thadden

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: April 2004

Abstract

The purpose of this note is to point out an omission in an important paper by Sharpe (1990) on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims in Sharpe (1990), this game only has an equilibriuim in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.

Keywords: Banking relationships, competition under asymmetric information, informational lock-in, auctions

JEL Classification: D43, D44, D82, G21, G30

Suggested Citation

von Thadden, Ernst-Ludwig, Asymmetric Information, Bank Lending, and Implicit Contracts: The Winner's Curse (April 2004). Financial Research Letters 1, 2004, 11-23, Available at SSRN: https://ssrn.com/abstract=3559600

Ernst-Ludwig Von Thadden (Contact Author)

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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