Empirical Determinants of Bargaining Power
Kobe University - Graduate School of Business Administration
May 1, 2006
This paper empirically investigates what determine bargaining power between a lender and a borrower who have continuing transactional relationships. Bargaining power is proxied by which side of the transaction, i.e. the lender or the borrower, usually incurs a shoe-leather cost when they have contact. The proxy is regressed on three types of variables that can potentially determine distribution: (i) lender's competition, (ii) the degree of informational asymmetry between the two parties, and (iii) borrower performance. Consistent with theoretical predictions, we find that intensive lender competition and borrowers' good performance increase the likelihood of the lender incurring the cost, or the borrower's power. We also obtain evidence suggesting that some lenders enjoy a status of informational monopoly and capture borrowers.
Number of Pages in PDF File: 13
Keywords: Bargaining power, Distribution, Banking relationship, Asymmetric information,
JEL Classification: D30, C78, L13, G21, L14
Date posted: January 2, 2007