Template-type: ReDIF-Paper 1.0
Author-Name: Filippo De Marco
Author-Name: Silvio Petriconi
Title:Bank Competition and Information Production
Abstract: We show that competition adversely affects the "specialness" of bank lending. In particular, we observe that the positive abnormal return on the borrowing firm's stock after the announcement of a bank loan is reduced in US states that deregulate interstate branching.The negative effect of competition on the value of bank loans is present only for ex-ante opaque firms (i.e., firms with few tangible assets and bank-dependent borrowers) and for banks that presumably rely more on "soft" information (i.e., small banks).Moreover, we find that the probability of a covenant violation in a syndicated deal and charge-off rates on small business loans are higher in deregulated states. Our results suggest that competition decreases loan quality because it reduces banks' incentives to invest in information.
Classification-JEL: G21, G28
Keywords: asymmetric information; competition; bank deregulation; loan announcement returns
Length: 41
Number: 19130
Creation-Date: 2019
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp19130.pdf
File-Format: application/pdf
File-Size: 777
Handle: RePEc:baf:cbafwp:cbafwp19130