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Collateral and Local Lending: Testing the Lender-Based Theory

Andrea Bellucci (), Alexander Borisov (), Germana Giombini () and Alberto Zazzaro ()
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Alexander Borisov: University of Cincinnati

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In this paper we empirically test the recent lender-based theory for the use of collateral in bank lending. Based on a proprietary dataset of loan contracts written by a local bank in competitive credit markets, we use the physical proximity between borrowers and the lending branch of the bank to capture its information advantage and the magnitude of collateral-related transaction costs. Overall, our results seem more consistent with several classic borrower-based explanations rather than with the lender-based view. We show that, conditional on obtaining credit from the local bank, more distant borrowers experience higher collateral requirements and lower interest rates. Moreover, competitive pressure from transaction lenders does not magnify the importance of lender-to-borrower distance. Our findings are also obtained with estimation techniques that allow for endogenous loan contract terms and joint determination of collateral and interest rates. JEL Classification: G21, G32, L11

Keywords: Distance; Collateral; Interest Rate; Bank lending. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cta and nep-ure
Date: 2015-04-18
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Related works:
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015) Downloads
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015) Downloads
Working Paper: Collateral and Local Lending: Testing the Lender-Based Theory (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:401

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