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The Effects of the Bank-Internal Ratings on the Loan Maturity

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Author Info
Nataliya Fedorenko
Dorothea Schäfer
Oleksandr Talavera

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Abstract

The paper focuses on the effects of three different internal bank ratings - Risk-, Property- and Creditworthiness-Rating - on the loan maturity. We use a sample of about 5,000 loans given to sole proprietors and corporate borrowers by two German banks from January 2003 till July 2005. The estimation results for corporate borrowers are consistent with Diamond's (1991) predictions of non-monotonic relationship between ratings and maturity. The best rated and the worst rated loans tend to have shorter maturities than loans with an intermediate rating. However, our results for sole proprietors conflict with the predictions of Diamond and with the majority of the empirical literature. We find a negative association between ratings and maturity of the loans given to sole proprietors.

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Publisher Info
Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 704.

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Length: 25 p.
Date of creation: 2007
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Handle: RePEc:diw:diwwpp:dp704

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Related research
Keywords: loan maturity internal bank ratings risk of default creditworthiness

Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G20 - Financial Economics - - Financial Institutions and Services - - - General

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  1. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2005. "Debt Maturity, Risk, and Asymmetric Information," Journal of Finance, American Finance Association, vol. 60(6), pages 2895-2923, December. [Downloadable!] (restricted)
    Other versions:
  2. William B. English & William R. Nelson, 1998. "Bank risk rating of business loans," Finance and Economics Discussion Series 1998-51, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Stohs, Mark Hoven & Mauer, David C, 1996. "The Determinants of Corporate Debt Maturity Structure," Journal of Business, University of Chicago Press, vol. 69(3), pages 279-312, July. [Downloadable!] (restricted)
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  12. Altman, Edward I. & Saunders, Anthony, 1997. "Credit risk measurement: Developments over the last 20 years," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1721-1742, December. [Downloadable!] (restricted)
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  17. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-31, June. [Downloadable!] (restricted)
  18. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-63, June. [Downloadable!] (restricted)
    Other versions:
  19. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September. [Downloadable!] (restricted)
  20. Sudip Datta & Mai Iskandar-Datta & Kartik Raman, 2005. "Managerial Stock Ownership and the Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 60(5), pages 2333-2350, October. [Downloadable!] (restricted)
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