Abstract - On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

Theory argues that the non-exclusivity of financial contracts generates important negative externalities on lenders that may undermine credit availability. Using a difference-in-difference analysis and a unique dataset with internal information on a bank's willingness to lend to each firm, we find that the bank's willingness to lend to a previously exclusive firm decreases when the firm obtains a loan at another bank ("outside loan"). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and is muted when the initial bank's existing and future loans retain seniority and are secured with valuable collateral.

Vasso Ioannidou
Tilburg University
24. Jun 2014

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