Lending relationships in line-of-credit and nonline-of-credit loans: Evidence from collateral use in small business

Chakraborty, Atreya; Hu, Charles X.

doi:10.1016/j.jfi.2005.07.002

Cited by 159 publications

(127 citation statements)

References 26 publications

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“…Lenders may gather proprietary information about the borrower's project choice, effort, and risk as their relationship with the borrower strengthens (e.g., Petersen and Rajan 1994, Berger and Udell 1995, Degryse and van Cayseele 2000. The empirical association between collateral and relationship strength is sometimes found to be negative as predicted by the private-information models (e.g., Berger and Udell 1995, Harhoff andKorting 1998, Chakraborty andHu 2006) -precisely those borrowers that pledge collateral in models based on moral hazard and other ex post frictions. Second, the results could be biased toward a negative association to the extent tha t collateral and relationships are substitute methods of dealing with opacity problems.…”

Section: Empirical Literature Reviewmentioning

confidence: 99%

Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Berger¹,

Espinosa‐Vega²,

Frame³

et al. 2011

Journal of Financial Intermediation

179

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature-that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the empirical importance of this theory. Terms of use: Documents inJEL classification: G21, D82, G32, G38

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Section: Empirical Literature Reviewmentioning

confidence: 99%

Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Berger¹,

Espinosa‐Vega²,

Frame³

et al. 2011

Journal of Financial Intermediation

179

View full text Add to dashboard Cite

show abstract

“…Brick and Palia (2007) show that the probability of firm collateral requirement decreases with the length of bank-firm relationship. Similarly, Chakraborty and Hu (2006) find that the incidence of collateral pledge decreases with the number of lender-provided financial services used by the borrower. By contrast, other studies (Machauer and Weber 1998, Degryse and Van Cayseele 2000, Elsas and Krahnen 2002, Lehmann and Neuberger 2001, and Menkhoff et al 2006, Ono and Uesugi 2009) find that collateral is contract-term prevalent into the relationship between the borrowers and their main bank.…”

Section: Literature Reviewmentioning

confidence: 80%

Relationship Lending and Credit Quality

2013

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We analyze if the relationship lending reduces the borrower's probability of borrowers' default and if this beneficial effect operates also for those borrowers who are more exposed to the economic downturn. By using unique, matched data of 43,000 firms and their lending institutions between 2008 and 2010, we document that the probability that a firm becomes distressed decreases when the creditor concentration is high and the duration of bank-firm relationships is long. While these results seem to support the beneficial effect of the relationship lending practices, we note that the organizational distance of banks and collateral also matters both as determinants of loan distress and as determinants of loan downgrading. The results are stronger for smaller firms.JEL classification: G21

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“…Boot and Thakor (1994) reported similar results and explained that a longer term bank-borrower relationship enables the banks to efficiently evaluate the borrower over time and reduces the use of collateral. Chakraborty and Hu (2006) also found a negative relationship between the firm's age and the incidence of collateral. The authors explained that since older firms have longer track records and less information problems than younger firms, they are less likely to pledge collateral.…”

Section: Collateralmentioning

confidence: 85%

“…Chakraborty and Hu (2006) also suggested that collateralization could reduce informational asymmetry and moral hazard problems. In addition, the authors also reported the need for collateral to decrease as the duration of the bank-borrower relationship increases.…”

Section: Collateralmentioning

confidence: 99%

An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market

Qing¹,

Gan

Li³

2011

J Bank Regul

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of a thesis submitted in partial fulfillment of the requirements for the Degree of M.C.M An Empirical Analysis of the Effects of Market Response to Bank Loan Announcements in the Hong Kong Stock Market Qing ChenThis study will validate several key results from previous studies of bank loan announcement effects by using the data from Hong Kong market following the 1997 Asian crisis. Banks are believed to play a unique role in financial market which could effectively reduce the problem of information asymmetry and moral hazard. Banks could access borrowers' inside information which is not available to other participants.Thus bank loan announcements convey valuable information to the market, and market response of the stock price should be positive. However, because of the significant reform in both financial market and information market, the valuation of bank loan announcement conveyed need to be reconsidered. This study investigates whether banks are still "unique" in the financial market or whether they are like middlemen between borrowers and investors. Data used in this study is collected from the Hong Kong Stock Exchange Index, and a standard event study with the market model is applied in the research to conduct the empirical analysis.The results suggest bank loan announcements are associated with significantly higher positive abnormal returns than non-bank loan announcements. Based on the market model of event study, market response is found to be significantly positive for loan syndication, short maturity loan and borrower's debt ratio, and negatively related to II firm size and loan size. Bank loans with refinancing and capital expenditure and no specific purpose have significantly higher positive abnormal returns, and borrowers with property and industrial industry type have more significant positive abnormal returns compared to other industry type. The findings also suggest the Hong Kong stock market is efficient in both strong and semi-strong form for bank loan announcements. A strong evidence of information leakage problem is found for nonbank loan announcements. The results are generally consistent with the existing literature.Key Words: bank loan announcements, abnormal returns, information asymmetry, syndication, loan size, loan maturity, loan purpose, firm size, industry type, debt ratio, market efficiency. III ACKNOWLEDGEMENTS

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Lending relationships in line-of-credit and nonline-of-credit loans: Evidence from collateral use in small business

Cited by 159 publications

References 26 publications

Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Relationship Lending and Credit Quality

An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market

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