Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 258: On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

Hans Degryse (), Vasso Ioannidou () and Erik von Schedvin ()
Additional contact information
Hans Degryse: Department of Finance, Postal: Tilburg University, KU Leuven & CEPR
Vasso Ioannidou: Department of Fin, Postal: Tilburg University, CentER & EBC
Erik von Schedvin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

Abstract: A string of theoretical papers shows that the non-exclusivity of credit contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect the supply of credit. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its credit supply when a borrower obtains a loan at another creditor (an “outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial creditor’s existing and future loans retain seniority over the outside loans and are secured with valuable collateral.

Keywords: non-exclusivity; contractual externalities; credit supply; debt seniority

JEL-codes: G21; G34; L13; L14

42 pages, February 1, 2012

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