A Multinomial Logit Analysis of Problem Loan Resolution Choices in Banking

Edward C Lawrence and Nasser Arshadi

Journal of Money, Credit and Banking, 1995, vol. 27, issue 1, 202-16

Abstract: This paper presents a conceptual framework of problem loan resolution choices that is a function of the combined borrower and lender decisions. A bank will choose a workout option if its expected value is greater than the outcome under a no-workout plan. For the borrower, if the reputational penalty due to a default is less than the opportunity cost of the best new alternative, the borrower will have an incentive to default. If the reverse holds then the borrower will be better-off with a loan workout. Using a unique data set composed of borrower, lender and economic factors we empirically examine the problem loan resolution choices. The, results provide support for our conceptual framework that problem loan choices are based on combined borrower/lender variables. Copyright 1995 by Ohio State University Press.

Date: 1995
References: Add references at CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-2879%2819950 ... 0.CO%3B2-8&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

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:mcb:jmoncb:v:27:y:1995:i:1:p:202-16

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().