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Lending to small businesses: the role of loan maturity in addressing information problems

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  • Hernán Ortiz-Molina

    ()

  • María Penas

    ()

Abstract

We investigate what determines the maturity of loans to small, informationally opaque businesses.We find that longer maturities are associated with collateral pledges, better financial condition, good credit history, and less informational opacity of the borrower.However, we do not find a positive association between stronger firm-creditor relationships (which can attenuate these information asymmetries) and longer maturities.The evidence suggests that creditors use shorter maturities to induce more frequent renegotiation of contract terms, thus enforcing closer monitoring of more informationally opaque and risky borrowers.Overall, our results are consistent with shorter loan maturities mitigating the consequences of borrower-lender informational asymmetries.

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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (April)
Pages: 361-383

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Handle: RePEc:kap:sbusec:v:30:y:2008:i:4:p:361-383

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Web page: http://www.springerlink.com/link.asp?id=100338

Related research

Keywords: Loan maturity; Collateral; Small businesses; Relationship lending; G21; G32; L26;

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