A lender-based theory of collateral
- We consider an imperfectly competitive loan market in which a local relationship lender has an information advantage vis-à-vis distant transaction lenders. Competitive pressure from the transaction lenders prevents the local lender from extracting the full surplus from projects, so that she inefficiently rejects marginally profitable projects. Collateral mitigates the inefficiency by increasing the local lender’s payoff from precisely those marginal projects that she inefficiently rejects. The model predicts that, controlling for observable borrower risk, collateralized loans are more likely to default ex post, which is consistent with the empirical evidence. The model also predicts that borrowers for whom local lenders have a relatively smaller information advantage face higher collateral requirements, and that technological innovations that narrow the information advantage of local lenders, such as small business credit scoring, lead to a greater use of collateral in lending relationships. JEL classification: D82; G21 Keywords: Collateral; Soft infomation; Loan market competition; Relationship lending
Author: | Roman InderstORCiDGND, Holger M. MüllerGND |
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URN: | urn:nbn:de:hebis:30-70369 |
URL: | http://www.imfs-frankfurt.de/fileadmin/user_upload/pdf/Working%20Paper_2006-06.pdf |
Parent Title (German): | Working paper series / Institute for Monetary and Financial Stability ; 6 |
Series (Serial Number): | Working paper series / Institute for Monetary and Financial Stability (6) |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2006 |
Year of first Publication: | 2006 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2009/09/17 |
Tag: | Collateral; Loan market competition; Relationship lending; Soft infomation |
GND Keyword: | Kreditsicherung; Bankkredit |
Note: | Published in: Journal of Financial Economics, 2007, vol. 84, issue 3, pp. 826-859 |
HeBIS-PPN: | 218496729 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Licence (German): | Deutsches Urheberrecht |