Credit Market Competition, Collateral and Firms' Finance

28 Pages Posted: 25 May 2006

See all articles by Jesus Saurina Salas

Jesus Saurina Salas

Banco de España

Gabriel Jiménez

Banco de España

Vicente Salas-Fumás

University of Zaragoza - Department of Business Administration and Organization

Date Written: May 24, 2006

Abstract

This paper investigates the relationship between credit market competition and the availability of bank credit for firms of unobserved credit quality when firms pledge collateral to secure the loans. Loan data from the Spanish Credit Register shows that the average credit quality of borrowers that get loans in a provincial market decreases with market concentration (which is shown to be positively correlated with market power) and with the availability of collateral, although the marginal effect of each variable decreases for higher values of the other. We also find that credit lines' interest rates increase with the availability of collateral, but the increase is lower for banks operating in more concentrated credit markets. Therefore market power in credit markets and collateral appear as substitutes to increase the availability of bank finance under asymmetric information.

Keywords: collateral, competition, asymmetric information, relationship banking

JEL Classification: G21

Suggested Citation

Saurina Salas, Jesus and Jimenez, Gabriel and Salas-Fumás, Vicente, Credit Market Competition, Collateral and Firms' Finance (May 24, 2006). Banco de Espana Research Paper No. WP-0612, Available at SSRN: https://ssrn.com/abstract=904303 or http://dx.doi.org/10.2139/ssrn.904303

Jesus Saurina Salas

Banco de España ( email )

Madrid 28014
Spain

Gabriel Jimenez (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Vicente Salas-Fumás

University of Zaragoza - Department of Business Administration and Organization ( email )

Dr. Cerrada 1
5005 Zaragoza
Spain
+34 976 761803 (Phone)

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