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

Schnitzer, Monika (1998): On the Role of Bank Competition for Corporate Finance and Corporate Control in Transition Economies. Discussion Paper / Centre for Economic Policy Research (CEPR),

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. ; Bank Competition; Corporate Finance; Corporate Governance; Restructuring; screening; Transition Economies

• Item Type: Paper
• Faculties: Economics; Economics > Chairs > Seminar for Comparative Economics
• Subjects: 300 Social sciences > 330 Economics
• Language: English