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The banking firm: the role of signaling with collaterals

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  • Bieta, Volker
  • Broll, Udo
  • Siebe, Wilfried

Abstract

In this paper we challenge basic results of signaling models. In our banking model each project of a borrower is described by a continuous density of outcomes. Different density functions are classified according to second stochastisch dominance. Combining these features we find that in a banking model collateral is no longer in a position to signal the degree of riskiness of the borrower to the lender. In most cases the equilibrium is a pooling equilibrium.

Suggested Citation

  • Bieta, Volker & Broll, Udo & Siebe, Wilfried, 2008. "The banking firm: the role of signaling with collaterals," Dresden Discussion Paper Series in Economics 04/08, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:0408
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    References listed on IDEAS

    as
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    6. Hellmuth Milde & John G. Riley, 1988. "Signaling in Credit Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(1), pages 101-129.
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    More about this item

    Keywords

    Signaling; collateral; perfect Bayesian equilibrium;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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