Why are commercial loan rates so sticky? The effect of private information on loan spreads

Cem Demiroglu, Christopher James and Guner Velioglu

Journal of Financial Economics, 2022, vol. 143, issue 2, 959-972

Abstract: Past studies find that commercial loan spreads are “sticky” in the sense that they do not fully respond to changes in open market rates or observable firm credit risk characteristics. In this paper, we provide evidence that the appearance of stickiness arises, in part, because the intensity of bank screening varies inversely with changes in both observable firm credit risk characteristics and credit market conditions. Our analysis demonstrates that stickiness in loan spreads does not necessarily indicate loan mispricing or misallocation of credit.

Keywords: Loan spreads; Relationship lending; Private information; Anchoring (search for similar items in EconPapers)
JEL-codes: G21 G30 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:2:p:959-972

DOI: 10.1016/j.jfineco.2021.05.057

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