The Relationship between Borrower Risk and Loan Maturity in Small Business Lending

Kirschenmann, Karolin; Nordén, Lars

doi:10.2139/ssrn.1011261

Cited by 13 publications

(18 citation statements)

References 51 publications

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“…Hernández-Cánovas and Koëter-Kant (2008), Ortiz-Molina and Penas (2008) and Kirschenmann and Norden (2010)). The descriptive statistics in Table 3 suggest that amount and maturity are complementary loan terms for the majority of loans.…”

Section: Loan Maturity Constraintsmentioning

confidence: 99%

The Dynamics in Requested and Granted Loan Terms When Bank and Borrower Interact Repeatedly

Kirschenmann

2010

SSRN Journal

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This paper studies how credit constraints develop over bank relationships. I analyze a unique dataset of matched loan application and loan contract information and measure credit constraints as the ratio of requested to granted loan amounts. I find that the most important determinants of receiving smaller than requested loan amounts are firm age and size at the time of the first interaction between borrower and bank. Over loan sequences, credit constraints decease most pronouncedly in the beginning of relationships and for the initially young and small firms. Moreover, the structure of the dataset allows me to disentangle the demand and supply effects behind these observed credit constraints. I find that the gap between requested and granted loan amounts decreases because both sides converge. If previous credit constraints were large, requested amounts increase more moderately, while granted amounts increase more strongly than in the case of small previous constraints. The findings are a sign of the use of dynamic incentives at the bank side to overcome information problems when contracting repeatedly with opaque borrowers. The results further suggest that, particularly in the beginning of a bank relationship, borrowers learn from their previous experience with credit constraints and adjust their demand accordingly. as well as seminar participants at the University of Mannheim for helpful comments and suggestions. I am especially grateful to the management and employees of the bank which provided me with the data. The paper was partially completed while I was visiting the Finance Department of Tilburg University whose hospitality I greatly appreciated.

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Section: Loan Maturity Constraintsmentioning

confidence: 99%

The Dynamics in Requested and Granted Loan Terms When Bank and Borrower Interact Repeatedly

Kirschenmann

2010

SSRN Journal

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“…In unstable economic settings, both low‐ and high‐risk firms are likely to prefer longer maturities to avoid rollover uncertainties related to interest rate policy (Flannery, ) and supply of bank loans (Diamond, ). Banks are likely to set shorter loan maturities, particularly for high‐risk firms, to facilitate and increase the efficiency of their monitoring (Berlin & Mester, ) and to reduce the capital required by regulators and supervisors (Kirschenmann & Norden, ). In light of the multitude of predictions, we expect low‐risk firms to prefer longer maturities to reduce uncertainties related to rolling over their debts, and high‐risk firms to obtain shorter maturities from their banks with the aim of facilitating their monitoring and providing flexibility in renegotiation.…”

Section: Hypothesesmentioning

confidence: 99%

“…These differing findings may be linked to the fact that the original theories that relate credit risk to loan maturities were developed for market debt and not bank loans; alternatively, the survey data used in Scherr and Hulburt (), Berger et al (), and Ortiz‐Molina and Penas (), for example, are average responses of firms. In Europe, Magri () and Kirschenmann and Norden () find a more consistent negative relation between credit risk and loan maturities in Italy (1993–2000) where the enforceability of contracts is poor; and Germany (2005) where firms have high bargaining power . The distinct findings for the United States and Europe may be explained by their institutional contexts, more specifically, the market emphasis in the United States vs. bank emphasis in Europe.…”

Section: Introductionmentioning

confidence: 96%

“…For firms, shorter maturities restrict long‐term capital expenditures (González, ) and increase tension due to regular renegotiating to roll over the loans and their terms (Bartoli, Ferri, Murro, & Rotondi, ). For banks, (shorter) loan maturities facilitate and increase the efficiency of monitoring (Berlin & Mester, ) and reduce the minimum capital required by regulators and supervisors (Kirschenmann & Norden, ).…”

Section: Introductionmentioning

confidence: 99%

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Credit risk, owner liability, and bank loan maturities during the global financial crisis

Duarte

Gama

Gulamhussen

2019

Euro Fin Management

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We relate credit risk and owners' personal guarantees to bank loan maturities during the global financial crisis. The findings, which remain robust to reverse causality, show that firms rated as low risk, with a strong relationship with the bank, whose owners provided personal guarantees and with large loan sizes obtained longer maturities. Banks with larger nonperforming loans provided loans with shorter maturities. Firms with low-and high-risk ratings that provided owners' personal guarantees obtained longer maturities. These findings shed additional light on the relationship between risk and loan maturities and the role of personal guarantees in reducing information asymmetries.

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“…The non-credit services cross-sold to the borrower, and the additional bank clients referred by the borrower can increase the income of commercial banks. In addition, Kirschenmann(2010), Gropp, Gruendl and Guettler(2011), Kirschenmann and Norden(2012) proposed the other representative research.…”

Section: Literature Reviewmentioning

confidence: 99%

Research on the negotiation decision-making model based on concession strategy in the artificial credit market

Wang

Zhang

Xiong

et al. 2016

Filomat

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This paper which introduces the transaction concession strategy expands the artificial credit market model based on agent. First, through the investment and financing decision model, analysis the feasible set of the loan interest rate pricing in credit market. Second, proposed the bargaining decision mechanism of credit market based on concession strategy. Then we carried out simulation experiments on the artificial credit market based on concession strategy. The bilateral financial contract bargaining pricing mechanism under single issue frame in this paper provides fundamental ideas for optimizing the operation mechanism of credit market and improving credit market performance.

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The Relationship between Borrower Risk and Loan Maturity in Small Business Lending

Cited by 13 publications

References 51 publications

The Dynamics in Requested and Granted Loan Terms When Bank and Borrower Interact Repeatedly

The Dynamics in Requested and Granted Loan Terms When Bank and Borrower Interact Repeatedly

Credit risk, owner liability, and bank loan maturities during the global financial crisis

Research on the negotiation decision-making model based on concession strategy in the artificial credit market

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