Collateral and Credit Rationing: A Review of Recent Empirical Studies as a Guide for Future Research

Steijvers, Tensie; Voordeckers, Wim

doi:10.1002/9781444391602.ch6

Cited by 27 publications

(44 citation statements)

References 59 publications

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“…Third, we respond to calls in the accounting and banking literatures to examine the interactions between alternative information choices and debt contract characteristics (e.g., Armstrong et al, 2010;Steijvers and Voordeckers, 2009). Our evidence indicates that lenders attempt to reduce information asymmetry problems either through the information provided by alternative information sources or through collateral requirements.…”

Section: Introductionmentioning

confidence: 99%

Alternative information sources and information asymmetry reduction: Evidence from small business debt

Cassar

Ittner

Cavalluzzo³

2015

Journal of Accounting and Economics

144

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We examine whether more sophisticated accounting methods (in the form of accrual accounting) interact with other information sources to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers‫׳‬ probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, the interest rate benefits from accrual accounting are greatest when the borrower‫׳‬s credit score is low and/or the length of its banking relationship with the lender is short. This evidence indicates that accrual accounting can benefit small business borrowers, but that the information contained in third-party credit scores and obtained through ongoing banking relationships can substitute for the incremental information provided by accrual accounting. ABSTRACT:We examine whether more sophisticated accounting methods (in the form of accrual accounting) interacts with other information sources and the pledging of collateral to reduce information asymmetries between small business borrowers and lenders, thereby lowering borrowers' probability of loan denial and cost of debt. We find that higher third party credit scores, but not the use of accrual accounting, decrease the likelihood of loan denial. However, firms using accrual accounting exhibit statistically lower interest rates after controlling for many factors associated with the cost of debt. Further, third-party credit scores and information obtained through ongoing banking relationships appear to substitute for the incremental information from accrual accounting, with the benefits from accruals decreasing in the firm's credit score and relationship length. We find little evidence that any of the alternative information sources influence loan decisions when collateral is pledged, consistent with theories that collateral provides an alternative means for addressing information asymmetry problems. Finally, our results indicate that borrower characteristics such as the firm's age and legal liability further moderate the relations between the various information sources and interest rates.

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Section: Introductionmentioning

confidence: 99%

Alternative information sources and information asymmetry reduction: Evidence from small business debt

Cassar

Ittner

Cavalluzzo³

2015

Journal of Accounting and Economics

144

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“…The use of collateral in the credit acquisition process is widespread, such as suggested by numerous studies on bank lending process (e.g. Ono and Uesugi, 2009;Steijvers and Voordeckers, 2009;Berger et al, 2011a, b, Broccardo et al, 2012. Thus, collateralization appears as a robust phenomenon that extends across countries and time periods, even if, it has been shown that the request for collateral is higher in less developed markets (see e.g.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

“…That is, if the value of the investment in borrowerspecific information increases over time, an increase in the number of lenders over the median (i.e., LENDERS(1/0) takes the value of 1) enhances the impact of duration of relationship on the probability of collateral pledging supporting H4a. Thus, it seems that the duration of relationship is a strong measure of relationship among the ways in which it can be measured (i.e., Steijvers and Voordeckers, 2009). Second, in model (2) we add the cross effects between the duration of relationship and the index of market concentration (i.e., Year*HHI(1/0)) where HHI(1/0) is a binary variable that takes the value of 1 if bank competition is medium-high 10 (columns 5, and 6).…”

Section: <Insert Here Table 3>mentioning

confidence: 99%

Collateralization of Loans: Testing the Prediction of Theories

Meles¹,

Sampagnaro

Starita³

2013

SSRN Journal

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“…Thus, we apply four strands of literature analyzing the role of collateral for informal versus semiformal and formal lending in a developing rural area. To the best of our knowledge, this application and its connection to different strands of literature is new: first, data on loan contract terms and borrower risk (see the survey by Steijvers and Voordeckers, ) clearly reveal informal lenders’ lower reliance on collateral, whereas evidence based on purely descriptive observations is less clear‐cut. Second, there are specific data on the relationship between lender and borrower which according to the theory of relationship lending may explain lesser collateral requirements (e.g., Chakraborty and Hu, ; Behr et al , ).…”

Section: Introductionmentioning

confidence: 98%

Credit Market Structure and Collateral in Rural Thailand

Kislat

Menkhoff

Neuberger³

2017

Economic Notes

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This paper empirically examines reliance on collateral in different credit market segments-formal, semiformal and informal lending-of a developing rural financial market. Determinants of collateralization indicate that all three types of lenders price risk conventionally. Controlled for standard risk factors, however, formal lenders rely on collateral about 40 per cent more often than informal lenders. The difference is explained by informal lenders' better information on borrowers. This is shown by informal lenders' behaviour: a longer lending relationship does not improve information about the borrower but shorter distance to the borrower does-the opposite applies to formal lenders, as predicted by theory.(J.E.L.: G21, O16, Q14).

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Collateral and Credit Rationing: A Review of Recent Empirical Studies as a Guide for Future Research

Cited by 27 publications

References 59 publications

Alternative information sources and information asymmetry reduction: Evidence from small business debt

Alternative information sources and information asymmetry reduction: Evidence from small business debt

Collateralization of Loans: Testing the Prediction of Theories

Credit Market Structure and Collateral in Rural Thailand

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