Abstract

In this paper, I estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007-2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Quantitatively, these informational frictions appear to be too small to explain the credit crunch in the U.S. syndicated corporate loan market.

View research
Download PDF

Citation

Darmouni, Olivier. "Informational Frictions and the Credit Crunch." Journal of Finance (forthcoming).

Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.

Each topic is linked to an index of publications on that topic.