We are grateful for comments from Eivind Bernhardsen, Loran Chollete, Robert Hauswald, Ari Hyytinen, Kjersti-Gro Lindquist, Charlotte Ostergaard, Richard Rosen, Erik Sørensen, and two anonymous referees.
Life-Cycle Patterns of Interest-Rate Mark-Ups in Small-Firm Finance*
Article first published online: 20 FEB 2012
© The editors of The Scandinavian Journal of Economics 2012.
The Scandinavian Journal of Economics
Volume 114, Issue 2, pages 629–657, June 2012
How to Cite
Kim, M., Kristiansen, E. G. and Vale, B. (2012), Life-Cycle Patterns of Interest-Rate Mark-Ups in Small-Firm Finance. The Scandinavian Journal of Economics, 114: 629–657. doi: 10.1111/j.1467-9442.2011.01688.x
Correction added after online publication on 20th February 2012; the original text read ‘However, we find evidence that bank market concentration for older firms’, omitting the word ‘matters’.
- Issue published online: 15 MAY 2012
- Article first published online: 20 FEB 2012
- First version submitted February 2009; final version received August 2010.
- Asymmetric information;
We derive empirical implications from a theoretical model of bank–borrower relationships. The interest-rate mark-ups of banks are predicted to follow a life-cycle pattern over the age of the borrowing firms. Because of endogenous bank monitoring by competing banks, borrowing firms initially face a low mark-up, and thereafter an increasing mark-up as a result of informational lock-in, until it falls for older firms when the lock-in is resolved. By applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric-information problems have a more pronounced life-cycle pattern of interest-rate mark-ups. Additionally, we examine the effects of concentrated banking markets on interest-rate mark-ups. The results indicate that the life cycle of mark-ups is mainly driven by asymmetric-information problems and not by concentration. However, we find evidence that bank market concentration matters for older firms†