Collateral, default risk, and relationship lending : an empirical study on financial contracting

  • This paper provides further insights into the nature of relationship lending by analyzing the link between relationship lending, borrower quality and collateral as a key variable in loan contract design. We used a unique data set based on the examination of credit files of five leading German banks, thus relying on information actually used in the process of bank credit decision-making and contract design. In particular, bank internal borrower ratings serve to evaluate borrower quality, and the bank's own assessment of its housebank status serves to identify information-intensive relationships. Additionally, we used data on workout activities for borrowers facing financial distress. We found no significant correlation between ex ante borrower quality and the incidence or degree of collateralization. Our results indicate that the use of collateral in loan contract design is mainly driven by aspects of relationship lending and renegotiations. We found that relationship lenders or housebanks do require more collateral from their debtors, thereby increasing the borrower's lock-in and strengthening the banks' bargaining power in future renegotiation situations. This result is strongly supported by our analysis of the correlation between ex post risk, collateral and relationship lending since housebanks do more frequently engage in workout activities for distressed borrowers, and collateralization increases workout probability. First version: March 12, 1999

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Metadaten
Author:Ralf Elsas, Jan Pieter KrahnenORCiDGND
URN:urn:nbn:de:hebis:30-9627
Parent Title (German):Institut f├╝r Kapitalmarktforschung (Frankfurt am Main): CFS working paper series ; No. 1999,13
Series (Serial Number):CFS working paper series (1999, 13)
Document Type:Working Paper
Language:English
Year of Completion:2000
Year of first Publication:2000
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:collateral; housebanks; loan contract design; relationship lending; workouts
GND Keyword:Deutschland; Bankkredit; Darlehen; Kredit; Bank; Beschaffungsmarketing; Beziehungsmanagement; Lieferung; Abnehmer; Kreditsicherheit; Kreditsicherung; Verhandlungsspiel; Verhandlungstheorie; Unternehmenssanierung
Issue:Version February 29, 2000
Page Number:34
Note:
Neuere Version unter dem Titel "Collateral, relationship lending and financial distress : an empirical study on financial contracting" s.a. http://publikationen.ub.uni-frankfurt.de/volltexte/2008/5300/
HeBIS-PPN:197996310
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht