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Credit Lines and Credit Utilization

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Author Info

  • Agarwal, Sumit
  • Ambrose, Brent W.
  • Liu, Chunlin

Abstract

While much is known about the characteristics of consumers or businesses that obtain credit lines, relatively little is known empirically about credit line utilization after origination. This study fills that gap by testing two interrelated hypotheses concerning borrower credit quality and credit line utilization. The empirical analysis confirms that borrowers with higher expectations of future credit quality deterioration originate credit lines to preserve financial flexibility. Furthermore, we estimate a competing risks model that confirms our predictions concerning changes in borrower credit line utilization in response to borrower credit quality shocks.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0010
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Bibliographic Info

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

Volume (Year): 38 (2006)
Issue (Month): 1 (February)
Pages: 1-22

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:1-22

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

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Cited by:
  1. Arthur Hau, 2011. "Pricing of Loan Commitments for Facilitating Stochastic Liquidity Needs," Journal of Financial Services Research, Springer, vol. 39(1), pages 71-94, April.
  2. Chung Baek & Jongwook Reem & Thomas Jackman, 2011. "Bank loan commitments and Material Adverse Change clause," Journal of Economics and Finance, Springer, vol. 35(3), pages 361-369, July.
  3. Gabriel Jiménez & José A. López & Jesús Saurina, 2008. "Empirical analysis of corporate credit lines," Banco de Espa�a Working Papers 0821, Banco de Espa�a.
  4. Sumit Agarwal, 2007. "The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 135-154, 06.
  5. Smith, Brent C, 2011. "Stability in consumer credit scores: Level and direction of FICO score drift as a precursor to mortgage default and prepayment," Journal of Housing Economics, Elsevier, vol. 20(4), pages 285-298.
  6. Pinaki Bag & Michael Jacobs Jr, 2011. "Parsimonious exposure-at-default modeling for unfunded loan commitments," Journal of Risk Finance, Emerald Group Publishing, vol. 13(1), pages 77-94, January.
  7. Ilhyock Shim & Goetz von Peter, 2007. "Distress selling and asset market feedback," BIS Working Papers 229, Bank for International Settlements.
  8. Bag, Pinaki, 2010. "Exposure at Default Model for Contingent Credit Line," MPRA Paper 20387, University Library of Munich, Germany.
  9. LaCour-Little, Michael & Calhoun, Charles A. & Yu, Wei, 2011. "What role did piggyback lending play in the housing bubble and mortgage collapse?," Journal of Housing Economics, Elsevier, vol. 20(2), pages 81-100, June.
  10. Carole Howorth & Andrea Moro, 2012. "Trustworthiness and interest rates: an empirical study of Italian SMEs," Small Business Economics, Springer, vol. 39(1), pages 161-177, July.
  11. Calem, P. & Cannon, M. & Nakamura, L.I., 2011. "Credit Cycle and Adverse Selection Effects in Consumer Credit Markets – Evidence from the HELOC Market," Discussion Paper 2011-086, Tilburg University, Center for Economic Research.
  12. Sumit Agarwal & Souphala Chomsisengphet & Chunlin Liu & Nicholas S. Souleles, 2010. "Benefits of relationship banking: evidence from consumer credit markets," Working Paper Series WP-2010-05, Federal Reserve Bank of Chicago.
  13. Schlüter, Tobias & Sievers, Sönke & Hartmann-Wendels, Thomas, 2012. "How can banks effectively stabilize their retail customers saving behavior? The impact of contractual rewards on saving persistence and cash flow volatility," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62057, Verein für Socialpolitik / German Economic Association.
  14. Paul Calem & Matthew Cannon & Leonard Nakamura, 2011. "Credit cycle and adverse selection effects in consumer credit markets -- evidence from the HELOC market," Working Papers 11-13, Federal Reserve Bank of Philadelphia.
  15. Pietro Alessandrini & Andrea F. Presbitero & Alberto Zazzaro, 2009. "Banks, Distances and Firms' Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 261-307.
  16. Francesco Dainelli & Francesco Giunta & Fabrizio Cipollini, 2013. "Determinants of SME credit worthiness under Basel rules: the value of credit history information," PSL Quarterly Review, Economia civile, vol. 66(264), pages 21-47.

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