Bank-firm relationships, competition and asymmetric information.

Sous la direction de M. Michael TROEGE (ESCP Business School)

The thesis builds on a large body of work analyzing the implications of asymmetric information on bank-firm relationships. It considers the issue from three different perspectives: asymmetric information of firms about banks, asymmetric information between banks about firms, asymmetric in- formation of banks about other banks.

In the first article, we show, using a theoretical model, that asymmetric information about lenders can lead to inefficient signalling by banks regarding their own type, which results in credit rationing. The mechanism is simple: Some banks are able to acquire information reducing inefficient liquidation of firms in financial distress whereas other banks cannot acquire this information and will always liquidate a firm in financial distress. In order to be recognized by firms as information generating banks, banks need to display low portfolio default rates, which can only happen if they exclude risky borrowers.

In the second article, we change perspective and analyze asymmetric in- formation banks generate about firms as well as across banks. We investigate how the information advantage of a firm’s current bank compared to com- 7 peting banks impacts the evolution of lending relationships, and how banks use the information they generate during a lending relationship. We develop a theoretical model, which demonstrates that banks having a lending rela- tionship with a given firm benefit from informational rents in two ways. We show that there exists the well-known phenomenon of a hold up by the cur- rent bank, which can raise the interest rates when refinancing a loan of their creditworthy borrowers. However, we argue that this is not the only advan- tage for the inside banks and that they can also unload part of their exposure to uninformed banks when anticipating a borrower’s default. This is possi- ble because uninformed banks manage to win some loans when inside banks increase their interest rates to good borrowers. We take this hypothesis to the data and test this effect empirically. We note that this effect is prevalent for firms, for which the public information has not yet deteriorated, i.e. for which the difference between private and public information is the largest.

Finally, in the third article, we empirically show that, in regions where bank competition is lower, firms require more banks to join their bank pool in order to create additional competition. This paradoxically results in larger bank pools at firm level in those regions, where competition is weaker. This suggests that firms can strategically generate bank competition in order to reduce banks’ bargaining power.

 

Keywords : Bank reputation, Bankruptcy, Credit rationing, Competition, Relationship banking, Moral hazard