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Creditor Rights, Enforcement, and Bank Loans
Author(s) -
BAE KEEHONG,
GOYAL VIDHAN K.
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01450.x
Subject(s) - loan , creditor , maturity (psychological) , business , enforcement , financial system , participation loan , cross collateralization , non conforming loan , monetary economics , non performing loan , finance , debt , economics , political science , law , psychology , developmental psychology
We examine whether differences in legal protection affect the size, maturity, and interest rate spread on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan amounts, shortening loan maturities, and increasing loan spreads. These effects are both statistically significant and economically large. While stronger creditor rights reduce spreads, they do not seem to matter for loan size and maturity. Overall, we show that variation in enforceability of contracts matters a great deal more to how loans are structured and how they are priced.