Bank information monopolies and hold-up effects: International evidence

Abstract

We examine whether hold-up effects are confined to the U.S. market. Using an international sample, we investigate whether firms with access to the public debt market pay lower loan spreads. We hypothesize that when firms issue public bonds, they reveal private information of their credit risk, and thus the monopoly power of inside banks decreases, resulting in lower loan spreads. We find extensive evidence to support this conjecture. We also find that hold-up effects are stronger during recessions and more significant in countries with stringent bank regulations but insignificant during banking crises and the 2007–2008 financial crisis.