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Bank Loan Commitment Contracts: Data, Theory, and Tests

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Author Info
Shockley, Richard L
Thakor, Anjan V

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Abstract

Over 80 per cent of all commercial bank lending to corporations in the U.S. is done via bank loan commitments. Yet the authors have little empirical knowledge of loan commitment contracts. In this paper they describe the rich contractual structure of bank loan commitments based on data pertaining to over 2,500 contracts. The authors then develop a model which demonstrates that the observed complex structure of bank loan commitment contracts (which typically include multiple fee structures borrower-specific contracting variables, and the standard 'material adverse change clause') is important when the bank faces borrower adverse selection and moral hazard problems. Finally, the authors verify the robustness of their model by confronting its additional testable predictions with the data. Copyright 1997 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 29 (1997)
Issue (Month): 4 (November)
Pages: 517-34
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Handle: RePEc:mcb:jmoncb:v:29:y:1997:i:4:p:517-34

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  4. Issam Hallak, 2003. "Bank Loans Non-Linear Structure of Pricing: Empirical Evidence from Sovereign Debts," CFS Working Paper Series 2003/33, Center for Financial Studies. [Downloadable!]
  5. Anthony D.F. Coleman & Neil Esho & Ian G. Sharpe, 2002. "Do Bank Characteristics Influence Loan Contract Terms?," Working Papers wp0008, Australian Prudential Regulation Authority. [Downloadable!]
  6. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 1999. "Banks as Liquidity Providers: An Explanation for the Co-Existence of Lending and Deposit-Taking," NBER Working Papers 6962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Yuki Teranishi, 2008. "Optimal Monetary Policy under Staggered Loan Contracts," IMES Discussion Paper Series 08-E-08, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  9. Tobias Miarka & Michael Tröge, 2005. "Do bank-firm relationships reduce bank debt? Evidence from Japan," European Journal of Finance, Taylor and Francis Journals, vol. 11(1), pages 75-92, February. [Downloadable!] (restricted)
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  11. Sumit Agarwal & Souphala Chomsisengphet & John C. Driscoll, 2004. "Loan commitments and private firms," Finance and Economics Discussion Series 2004-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Gabriel Jiménez & Jose A. Lopez & Jesús Saurina, 2007. "Empirical analysis of corporate credit lines," Working Paper Series 2007-14, Federal Reserve Bank of San Francisco. [Downloadable!]
  13. Issam Hallak, 2001. "The Determinants of Up-Front Fees on Bank Loans to LDC Sovereigns," Economics Series Working Papers 075, University of Oxford, Department of Economics. [Downloadable!]
  14. Nataliya Fedorenko & Dorothea Schäfer & Oleksandr Talavera, 2007. "The Effects of the Bank-Internal Ratings on the Loan Maturity," Discussion Papers of DIW Berlin 704, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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