Anton van Boxtel (Universität Wien) – Credit Market Competition and LiquidityDiesen Termin in meinem Kalender speichern
This paper studies the effect of non-exclusive competition on liquidity provision in the standard financial intermediation model by Holmström and Tirole (1998). When the firm in need of funds exclusively deals with an incumbent competitive lender, the latter is willing to provide the up-front investment with a limited liquidity facility in exchange for part of the project's proceeds. If the firm can also privately contract with an outside lender, there is a difficulty in limiting liquidity provision. The outside lender can free ride upon the liquidity provided by the incumbent lender in exchange for the firm's share of the project's proceeds. Thus the equilibrium with exclusive competition by Holmström and Tirole (1998) is no longer sustained. We show how the incumbent lender can ward off the outside lender by offering unlimited liquidity support. The observed increase in liquidity holdings by firms could be explained, among other reasons, by an increased competition in credit market that we capture as a shift from exclusive to non-exclusive contracting environments.
Freitag, 7. Dezember 2018, 11.00 Uhr
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