In many developing countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people generally suffers from high corruption levels. We explain why citizens do not exert enough political pressure to reduce corruption if...

The current economic policy discussion on financial integration in the European Union concentrates on cross-border mergers. We study the impact of cross-border lending in a theoretical model where banks acquire either hard or soft information on borrowing firms and predict that the closer firms...

Should the European Union grant state aid through an institution like the European Investment bank? This paper evaluates the efficiency of different measures for granting state aid. We use a theoretical model with firms that differ in their creditworthiness and compare different types of...

During the financial crisis asymmetric information in credit markets became moresevere. Did relationship banking help firms to avoid impaired credit financing andwhich credit financing problems did relationship banking help to circumvent? We usesurvey data for 1,139 German firms to analyze how...

In the current recession, politicians grant state aid of yet unknown dimensions. But whatis the most efficient measure for granting such aid? We use a theoretical model withfirms that differ in their creditworthiness and compare different types of direct subsidieswith indirectly subsidized...

The current crisis raises the question whether loans to SMEs in emerging markets areinherently more risky. We use a unique unbalanced panel of nearly 700 loans made toSMEs in Slovakia between 2000 and 2005. Several probit and panel probit models showthat liquidity and profitability factors are...

The effects of bank competition and institutions on credit markets are usually studied separately although both factors are interdependent. We study the effect of bank competition on the choice of contracts (screening versus collateralized credit contract) and explicitly capture the impact of...

Credit markets in many Eastern European countries are now dominated by foreign-owned banks. We analyze the development for foreign ownership and its impact on lending rate in ten Eastern European countries between 1995 and 2003. Currently, the majority of loans from foreign banks is granted by...

It has been argued that competing banks make inefficiently frequent use of collateralization in situations where they are better able to evaluate a project's risk than entrepreneurs. We study the bank's choice between screening and collateralization in a model where banks do not have this...