The Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market

Arito Ono, 有人 小野, アリト オノ, Iichiro Uesugi, 威一郎 植杉 and イイチロウ ウエスギ

No 371, PIE/CIS Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: This paper investigates the determinants of the use of collateral and personal guarantees in, Japan's SME loan market. We find that firms' riskiness does not have a significant effect on the, likelihood that collateral is used. We find, however, that main banks whose claims are collateralized, monitor borrowers more intensively, and that borrowers who have a long-term relationship with, their main banks are more likely to pledge collateral. These findings are consistent with the theory, that the use of collateral is effective in raising the bank's seniority and enhances its screening and, monitoring. This incentive effect for the bank becomes tenuous for personal guarantees.

Keywords: collateral; personal guarantees; relationship lending; SME (search for similar items in EconPapers)
JEL-codes: D82 G21 G30 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-04
Note: This draft: March 2008; First draft: August 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/15728/pie_dp371.pdf

Related works:
Journal Article: Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:piecis:371

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