Working Paper: NBER ID: w11052
Authors: Jun Qian; Philip E. Strahan
Abstract: We examine empirically how legal origin, creditor rights, property rights, legal formalism, and financial development affect the design of price and non-price terms of bank loans in almost 60 countries. Our results support the law and finance view that private contracts reflect differences in legal protection of creditors and the enforcement of contracts. Loans made to borrowers in countries where creditors can seize collateral in case of default are more likely to be secured, have longer maturity, and have lower interest rates. We also find evidence, however, that ?Coasian? bargaining can partially offset weak legal or institutional arrangements. For example, lenders mitigate risks associated with weak property rights and government corruption by securing loans with collateral and shortening maturity. Our results also suggest that the choice of loan ownership structure affects loan contract terms.
Keywords: No keywords provided
JEL Codes: K0; G2; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Creditor rights (G33) | Loan terms (G51) |
| Strong creditor rights (G33) | Secured loans (G21) |
| Strong creditor rights (G33) | Loan maturity (G51) |
| Strong creditor rights (G33) | Interest rates (E43) |
| Weak creditor rights (G33) | Loan maturity (G51) |
| Weak creditor rights (G33) | Interest rates (E43) |
| Legal formalism (K40) | Secured loans (G21) |
| Legal formalism (K40) | Loan maturity (G51) |
| Legal formalism (K40) | Interest rates (rated borrowers) (E43) |
| Legal formalism (K40) | Interest rates (unrated borrowers) (E43) |