Owner Guarantees, Observed and Unobserved Risks, and Bank Lending Spreads

• Type: Article in International Scientific Journal
• Date: 2024

Authors

Duarte, Fábio (Author) FEP; Gama, APM (Author) Other; Gulamhussen, MA (Author) Other

Journal

Title: JOURNAL OF FINANCIAL SERVICES RESEARCH

ISSN: 0920-8550

Indexing

ISI Web of Knowledge - 0 Citations

Scopus - 0 Citations

Other information

Authenticus ID: P-010-ZYZ

DOI: 10.1007/s10693-024-00434-w

Abstract (EN): In this paper, we examine the influence of owner guarantees on loan rates. Other studies on the influence of business collateral have used survey and credit register data to establish this link. They support it with the pre-lending information theory and post-lending incentive theory and find that the latter predominates the former. Thus, we measure observed and unobserved risks on bank lending spreads negotiated over the counter to show the co-existence of both theories. The main findings and robustness tests show that owner guarantees reduce bank lending spreads for safe but not risky firms, supporting the pre-lending information theory rather than the post-lending incentive theory. These findings underscore the role of owner guarantees in allaying the information problems the bank confronts prior to lending.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 41