Asymmetric information, bank lending and implicit contracts: the winner's curse [An article from: Finance Research Letters]

This digital document is a journal article from Finance Research Letters, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
The purpose of this note is to point out an error in an important paper by Sharpe [Journal of Finance 45 (1990)] on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims of Sharpe in [Journal of Finance 45 (1990)], this game only has an equilibrium in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.