TY  - JOUR
AU  - Gorton,Gary
AU  - He,Ping
TI  - Bank Credit Cycles
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11363
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11363
L1  - http://www.nber.org/papers/w11363.pdf
N1  - Author contact info:
Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu

Ping He
Department of Finance, Tsinghua SEM
Weilun 308
Beijing 100084, China
Tel: 8610-62795754
Fax: 8610-62784554
E-Mail: heping@sem.tsinghua.edu.cn
AB  - Private information about prospective borrowers produced by a bank can affect  rival lenders due to a "winner%u2019s curse" effect. Strategic interaction between banks with respect to the intensity of costly information production results in endogenous credit cycles, periodic "credit crunches." Empirical tests are constructed based on parameterizing public information about relative bank performance that is at the root of banks%u2019 beliefs about rival banks%u2019 behavior. Consistent with the theory, we find that the relative performance of rival banks has predictive power for subsequent lending in the credit card market, where we can identify the main competitors. At the macroeconomic level, we show that the relative bank performance of commercial and industrial loans is an autonomous source of macroeconomic fluctuations. We also find that the relative bank performance is a priced risk factor for both banks and nonfinancial firms. The factor-coefficients for non-financial firms are decreasing with size.
ER  -