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Organizational distance and use of collateral for business loans

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Author Info
Gabriel Jiménez () (Banco de España)
Vicente Salas-Fumás () (Universidad de Zaragoza)
Jesús Saurina () (Banco de España)
Abstract

This paper examines the effect of organizational distance (i.e. distance between the headquarters of the bank that grants a loan and the location of the borrower) on the use of collateral for business loans by Spanish banks on the basis of the recent lender based theory of collateral [Inderst and Mueller (2007)]. We find that, for the average borrower, the use of collateral is higher for loans granted by local lenders than by distant ones. We also show that the difference in the likelihood of collateral in loans granted by local lenders, relative to distant lenders, is higher among older and larger firms and among firms with longer duration of the lender-borrower relationship, than, respectively, younger, smaller firms and shorter duration. We also find that banks use lending technologies that are different for near and for distant firms, in response to organizational diseconomies.

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Paper provided by Banco de España in its series Banco de España Working Papers with number 0816.

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Length: 33 pages
Date of creation: Aug 2008
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Handle: RePEc:bde:wpaper:0816

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Related research
Keywords: bank lending technologies; distance; collateral; organizational diseconomies;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

This paper has been announced in the following NEP Reports:

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