Citation

Discussion Paper Details

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Title: On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies

Author(s): Monika Schnitzer

Publication Date: November 1998

Keyword(s): Bank Competition, Corporate Finance, Corporate Governance, Restructuring, screening and Transition Economies

Programme Area(s): Financial Economics, Industrial Organization and Transition Economics

Abstract: Banks play a central role in financing and monitoring firms in transition economies. This study examines how bank competition affects the efficiency of credit allocation; monitoring of firms; and the firms' restructuring effort. In our model, banks compete to finance an investment project with uncertain return. By screening the firm a bank learns about its profitability. Surprisingly, it is found that an increase in bank competition need not reduce a bank's screening incentive even though it lowers its expected profits. Furthermore, competition has a positive impact on the firms restructuring efforts. This suggests a positive role for bank competition in transition economies.

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Bibliographic Reference

Schnitzer, M. 1998. 'On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2013