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"Keeping it personal" or "getting real"? On the drivers and effectiveness of personal versus real loan guarantees

Sergio Mayordomo (), Antonio Moreno (), Steven Ongena () and Maria Rodriguez-Moreno ()

No 1715, Working Papers from Banco de España, Working Papers Homepage

Abstract: Little is known about the drivers and effectiveness of personal as opposed to real loan guarantees provided by firms. This paper studies a dataset of 477,209 loan contracts granted over the 2006-2014 period by one Spanish financial institution consisting of several distinguishable organisational units. While personal guarantees are mostly driven by the economic environment as reflected in firm and bank conditions, real guarantees are mostly explained by loan characteristics. In response to higher capital requirements imposed by the European authorities in 2011, personal guarantee requirements increased significantly more than their real counterparts. Our results imply that personal guarantees can discipline firms in their risk-taking, but their overuse can limit this positive effect and damage their performance.

Keywords: banks; asymmetric information; real guarantees; personal guarantees; risk-taking; capital requirements (search for similar items in EconPapers)
JEL-codes: D43 E32 G21 G32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn, nep-mac and nep-rmg
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