Working Paper: CEPR ID: DP8692
Authors: Hans Degryse; Vasso Ioannidou; Erik Von Schedvin
Abstract: Credit contracts are non-exclusive. A string of theoretical papers shows that nonexclusivity generates important negative contractual externalities. Employing a unique dataset, we identify how the contractual externality stemming from the non-exclusivity of credit contracts affects credit supply. In particular, using internal information on a creditor?s willingness to lend, we find that a creditor reduces its loan supply when a borrower initiates a loan at another creditor. Consistent with the theoretical literature on contractual externalities, the effect is more pronounced the larger the loans from the other creditor. We also find that the initial creditor?s willingness to lend does not change if its existing and future loans retain seniority over the other creditors? loans and are secured with assets whose value is high and stable over time.
Keywords: contractual externalities; credit supply; debt seniority; non exclusivity
JEL Codes: G21; G34; L13; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| outside loans (G29) | internal limits of the initial creditor (F34) |
| size of outside loan (G21) | reduction in internal limit of the initial creditor (G33) |
| secured loans (G51) | willingness to lend of initial creditor (G21) |