The Role of Collateral in the Credit Acquisition Process: Evidence from SME Lending

• Type: Article in International Scientific Journal
• Date: 2016

Authors

Duarte, F (Author) Other; Matias Gama, APM (Author) Other; Esperanca, JP (Author) Other

Journal

Title: Journal of Business Finance and Accounting

Vol. 43

Pages: 693-728

ISSN: 0306-686X

Publisher: Wiley-Blackwell

Indexing

ISI Web of Knowledge - 7 Citations

Scopus - 15 Citations

Other information

Authenticus ID: P-00K-SZS

DOI: 10.1111/jbfa.12207

Abstract (EN): This study tests the simultaneous impact of observed characteristics and private information on debt term contracts in a multi-period setting, using a dataset of 12,666 credit approvals by one major Portuguese commercial bank during 2007-2010. The main results show that borrowers with good credit scores that know they have a high probability of success and are unlikely to default are more willing to pledge collateral in return for a lower interest rate premium (IRP). Furthermore, lenders tailor the specific terms of the contract, increasing both collateral requirements and the IRP from observed risk, for borrowers operating in riskier industries and with less credit availability. The results are robust to controls for joint debt terms negotiation and the degree of collateralization offered by the borrower.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 36