Transactions Accounts and Loan Monitoring

Mester, Loretta J.; Nakamura, Leonard I.; Renault, Micheline

doi:10.1093/rfs/hhl018

Cited by 229 publications

(23 citation statements)

References 19 publications

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“…Nevertheless, accounting information seems particularly helpful in evaluating new borrowers (i.e., the initial loan decision; Danos, Holt, & Imhoff, 1989). A housebank has the most efficient access to information on its clients’ creditworthiness through monitoring their checking account activities which provide real-time cash flow information (Mester, Nakamura, & Renault, 2007; Norden & Weber, 2010). In contrast, financial statements likely do not provide incremental value over and above real-time cash flow and in-depth private information in housebank relationships.…”

Section: Hypothesis Development and Institutional Backgroundmentioning

confidence: 99%

What Happens If Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt

Deno

Loy

Homburg

2019

Entrepreneurship Theory and Practice

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We examine the effect of private accounting information becoming public on small firms’ access to bank debt. Both proprietary cost of disclosure and relationship banking have contributed to German private firms’ traditional non-disclosure of financial statements. We employ a regulatory change, which increased enforcement and established severe fines for firms that do not publicly disclose financial statements, as a quasi-natural experiment. We find that small firms’ access to bank debt has significantly increased after the disclosure shock. With our study based on a novel dataset in a non-voluntary private firm setting, we contribute to the discussion on private and public information in debt contracting.

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Section: Hypothesis Development and Institutional Backgroundmentioning

confidence: 99%

What Happens If Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt

Deno

Loy

Homburg

2019

Entrepreneurship Theory and Practice

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“…Like much of the previous empirical literature (e.g., Mester, Nakamura, and Renault (2007), Norden and Weber (2010)), we do not have access to direct measures of loan officer monitoring, such as communication with the borrower, meetings, phone calls, or emails. However, we can proxy for monitoring effort based on status changes of the loans in a loan officer's loan portfolio.…”

Section: Table 1 Descriptive Statisticsmentioning

confidence: 99%

Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract

Behr¹,

Drexler²,

Gropp³

et al. 2019

J. Financ. Quant. Anal.

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We investigate the implications of providing loan officers with a nonlinear compensation structure that rewards loan volume and penalizes poor performance. Using a unique data set provided by a large international commercial bank, we examine the main activities that loan officers perform: loan prospecting, screening, and monitoring. We find that when loan officers are at risk of losing their bonuses, they increase prospecting and monitoring. We further show that loan officers adjust their behavior more toward the end of the month when bonus payments are approaching. These effects are more pronounced for loan officers with longer tenures at the bank.

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“…Our second indicator of firm opaqueness, Income via bank, measures the share of the firm's sales that are settled through a bank account. We expect that the higher this share, the better banks are informed about the revenue sources of the firms (à la Mester, Nakamura and Renault (2007) and Norden and Weber (2007)). …”

Section: Distress Costsmentioning

confidence: 99%

Foreign Currency Borrowing by Small Firms

2009

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We examine the firm-and country-level determinants of the currency denomination of small business loans. We first model the choice of loan currency in a framework which features a trade-off between lower cost of debt and the risk of firm-level distress costs, and also examines the impact of information asymmetry between banks and firms. When foreign currency funds come at a lower interest rate, all foreign currency earners as well as those local currency earners with high revenues and low distress costs choose foreign currency loans. When the banks have imperfect information on the currency and level of firms revenues, even more local earners switch to foreign currency loans, as they do not bear the full cost of the corresponding credit risk. We then test the implications of our model by using a 2005 survey with responses from 9,655 firms in 26 transition countries. The survey contains details on 3,105 recent bank loans. At the firm level, our findings suggest that firms with foreign currency income and assets are more likely to borrow in a foreign currency. In contrast, firm-level distress costs and financial transparency affect the currency denomination only weakly. At the country level, the interest rate advantages of foreign currency funds and the exchange rate volatility do not explain the foreign currency borrowing in our sample. However, foreign bank presence, weak corporate governance and the absence of capital controls encourage foreign currency borrowing. All in all, we cannot confirm that "carry-trade behavior" is the key driver of foreign currency borrowing by small firms in transition economies. Our results do, however, support the conjecture that banking-sector structures and institutions that aggravate information asymmetries may facilitate foreign currency borrowing.

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Transactions Accounts and Loan Monitoring

Cited by 229 publications

References 19 publications

What Happens If Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt

What Happens If Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt

Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort under an Incomplete Contract

Foreign Currency Borrowing by Small Firms

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