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Financing Competitive Asset Bids When Information is Asymmetric: The Role of Collateral as a Signal

Author

Listed:
  • Hyde, C.
  • Vercammen, J.

Abstract

In this paper, borrowing agents require capital to finance competitive bids for a single productive asset rather than requiring capital for individual projects. Loan size is no longer effective as a signaling mechanism. Instead, high quality agents will either offer a sufficiently high level of collateral to signal their type or choose to pool with low quality agents. A pooling equilibrium will emerge if the implicit cost of signaling is too high but then high quality borrowers must bid against all borrowers rather than only their own type.

Suggested Citation

  • Hyde, C. & Vercammen, J., 1998. "Financing Competitive Asset Bids When Information is Asymmetric: The Role of Collateral as a Signal," Department of Economics - Working Papers Series 662, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:662
    as

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    More about this item

    Keywords

    CREDIT ; BORROWING ; ASYMETRIC INFORMATION;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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