BANK INTEREST MARGINS AND BUSINESS START‐UP COLLATERAL: TESTING FOR CONVEXITY

Andrew Burke and Aoife Hanley

Scottish Journal of Political Economy, 2006, vol. 53, issue 3, 319-334

Abstract: The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U‐shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point, the positive risk‐wealth association gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that a lender's pricing policy may even somewhat help to level the competitive playing field between ventures launched by higher and moderately wealthy entrepreneurs.

Date: 2006
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1111/j.1467-9485.2006.00382.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:53:y:2006:i:3:p:319-334

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0036-9292

Access Statistics for this article

Scottish Journal of Political Economy is currently edited by Tim Barmby, Andrew Hughes-Hallett and Campbell Leith

More articles in Scottish Journal of Political Economy from Scottish Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().