Collateral and Local Lending: Testing the Lender-Based Theory

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

No 21, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: In this paper we empirically test the recent lender-based theory for the use of collateral in bank lending. Based on a proprietary dataset of loan contracts written by a local bank in competitive credit markets, we use the physical proximity between borrowers and the lending branch of the bank to capture its information advantage and the magnitude of collateral-related transaction costs. Overall, our results seem more consistent with several classic borrower-based explanations rather than with the lender-based view. We show that, conditional on obtaining credit from the local bank, more distant borrowers experience higher collateral requirements and lower interest rates. Moreover, competitive pressure from transaction lenders does not magnify the importance of lender-to-borrower distance. Our findings are also obtained with estimation techniques that allow for endogenous loan contract terms and joint determination of collateral and interest rates.

Keywords: Distance; Collateral; Interest Rate; Bank lending (search for similar items in EconPapers)
JEL-codes: G21 G32 L11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-06
New Economics Papers: this item is included in nep-cfn and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27314/wp021.pdf

Related works:
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015)
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015)
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:21

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