Competition and the cost of debt

Valta, Philip (2012). Competition and the cost of debt. Journal of Financial Economics, 105(3), pp. 661-682. Elsevier 10.1016/j.jfineco.2012.04.004

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This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm’s competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute of Financial Management

UniBE Contributor:

Valta, Philip

Subjects:

600 Technology > 650 Management & public relations
300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

0304-405X

Publisher:

Elsevier

Language:

English

Submitter:

Karin Dolder

Date Deposited:

10 Aug 2016 08:55

Last Modified:

09 Sep 2017 21:15

Publisher DOI:

10.1016/j.jfineco.2012.04.004

BORIS DOI:

10.7892/boris.85636

URI:

https://boris.unibe.ch/id/eprint/85636

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