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Disequilibrium in the UK Corporate Loan Market

Atanasova, C.V. and Wilson, N. (2004) Disequilibrium in the UK Corporate Loan Market. Journal of Banking and Finance, 28 (23). pp. 595-614. ISSN 0378-4266

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Abstract

In the last decade, a debate has resurfaced about whether financial constraints stemming from asymmetric information and incentive problems play an important role in propagating monetary policy shocks. This paper investigates the monetary transmission mechanism in the UK and its impact on the availability of bank credit to small and medium size firms.

The empirical specification is based on a disequilibrium model that allows for the possibility of transitory credit rationing. Sample firms are classified endogenously into ‘borrowing constrained’ and ‘borrowing unconstrained’. The analysis of credit rationing takes into account not only firm specific variables, but also important macroeconomic factors such as the prevailing monetary conditions and the stage of the business cycle.

We find that (i) firms’ assets play an important role as collateral in mitigating borrowing constraints; (ii) during periods of tight monetary conditions corporate demand for bank credit increases, whereas the supply of bank loans is reduced; (iii) to avoid bank credit rationing smaller companies increase their reliance on interfirm credit; (iv) the proportion of borrowing constrained firms is significantly higher during the recession years of the early 1990s than at other times.

Item Type: Article
Academic Units: The University of York > Centre for Leadership and Management (York)
Depositing User: York RAE Import
Date Deposited: 04 May 2009 15:51
Last Modified: 04 May 2009 15:51
Published Version: http://dx.doi.org/10.1016/S0378-4266(03)00037-2
Status: Published
Publisher: Elsevier
Identification Number: 10.1016/S0378-4266(03)00037-2
URI: http://eprints.whiterose.ac.uk/id/eprint/6526

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