Estimating the relationship between collateral and interest rate: A comparison of methods

Andrea Bellucci, Alexander Borisov, Germana Giombini and Alberto Zazzaro ()

Finance Research Letters, 2021, vol. 43, issue C

Abstract: This paper uses a variety of estimation methods to explore the empirical relationship between interest rate and collateral requirements in bank loan contracts. Methods that do not allow for endogenous contract terms detect a positive reciprocal association between interest rate and collateral. Methods that allow for endogenous contract terms point to a strong positive effect of interest rate on collateral but the effect of collateral on interest rate is weaker. This highlights the importance of incorporating the endogenous nature of contract terms in empirical work.

Keywords: Bank lending; Collateral; Interest rate (search for similar items in EconPapers)
JEL-codes: G21 G32 L11 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Working Paper: Estimating the Relationship Between Collateral and Interest Rate: A Comparison of Methods (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s154461232100043x

DOI: 10.1016/j.frl.2021.101962

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