Academic
Publications
Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships

Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships,Steven A Sharpe

Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships   (Citations: 508)
BibTex | RIS | RefWorks Download
Customer relationships arise between banks and firms because, in the process of lending, a bank learns more than others about its own customers. This information asymmetry allows lenders to capture some of the rents generated by their older customers; competition, thus, drives banks to lend to new firms at interest rates that initially generate expected losses. As a result, the allocation of capital is shifted toward lower quality and inexperienced firms. This inefficiency is eliminated if complete contingent contracts are written or, when this is costly, if banks can make nonbinding commitments that, in equilibrium, are backed by reputation. Copyright 1990 by American Finance Association.
Published in 1990.
Cumulative Annual
View Publication
The following links allow you to view full publications. These links are maintained by other sources not affiliated with Microsoft Academic Search.
    • ...the costs of switching lenders under asymmetric information (e.g., Sharpe, 1990) as well as the trade-offs behind the possible use of multiple lenders as a remedy to the resulting lock-in effects (e.g., Detragiache et al., 2000)...
    • ...9 This simplification is standard in relationship-banking models; see, for example, Sharpe (1990, p. 1072) or von Thadden (2004, p. 14)...
    • ...Specifi cally, in aw orld in which banks learned about their borrowers after starting a lending relationship (like in Sharpe, 1990) and borrower quality were asymmetrically distributed across banks, the market for seasoned equity offerings might be affected by a lemons problem (like in Myers and Majluf, 1984)...

    Rafael Repulloet al. The Procyclical Effects of Bank Capital Regulation

    • ...However, this can create a situation of information monopoly for the bank (Sharpe 1990): the difficulties in conveying an accurate picture of firm performance, the time required to look for and evaluate potential new banks and the administrative effort involved in switching are expected to represent a very high cost for smaller firms, and they could be locked into a relationship with one bank (Howorth et al. 2003)...

    Carole Howorthet al. Trustworthiness and interest rates: an empirical study of Italian SMEs

    • ...Conversely, evidence for the USA shows that firms with either a single lender or with no public bonds outstanding display a negative relation between growth opportunities and bank debt (Houston and James 1996), a finding consistent with holdup of successful borrowers by monopolistic bank creditors (Sharpe 1990)...

    Sumit K. Majumdar. Retentions, relations and innovation: the financing of R&D in India

    • ...This expanded lending responsibility can diminish the quality of loan monitoring, since delegated monitoring is central to the existence of banks and makes them ‘special’ relative to other lenders by virtue of their access to private (inside) information about borrowing firms (Diamond, 1984; Sharpe, 1990; Rajan, 1992)...

    Frank Ametefeet al. Housing and construction finance, deposit mobilisation and bank perfor...

    • ...According to Sharpe (1990) if relationship lending allows superior knowledge, lenders can become monopolistic financiers in a dynamic setting...

    Emilios Galariotiset al. Recent Advances in Lending to the Poor with Asymmetric Information

Sort by: