Competition and Strategic Information Acquisition in Credit Markets

Posted: 7 Jun 2005

See all articles by Robert B. H. Hauswald

Robert B. H. Hauswald

American University - Department of Finance and Real Estate

Robert Marquez

University of California, Davis

Multiple version iconThere are 2 versions of this paper

Abstract

We investigate the interaction between banks' use of information acquisition as a strategic tool and their role in promoting the efficiency of credit markets when a bank's ability to gather information varies with its distance to the borrower. We show that banks acquire proprietary information both to soften lending competition and to extend their market share. As competition increases, investments in information acquisition fall, leading to lower interest rates but also to less efficient lending decisions. Consistent with the recent wave of bank acquisitions, we also find that merging for informational reasons with a competitor is an optimal response to industry consolidation.

Keywords: Lending competition, information acquisition, bank mergers, strategic bidding

JEL Classification: G21, L11, L14, D44

Suggested Citation

Hauswald, Robert B.H. and Marquez, Robert S., Competition and Strategic Information Acquisition in Credit Markets. Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=735803

Robert B.H. Hauswald (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1996 (Phone)
202-885-1946 (Fax)

Robert S. Marquez

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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