The Effects of the Bank-Internal Ratings on the Loan Maturity
AbstractThe 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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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 704.
Length: 25 p.
Date of creation: 2007
Date of revision:
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; Discrete Regressors; Proportions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-13 (All new papers)
- NEP-BAN-2007-07-13 (Banking)
- NEP-CFN-2007-07-13 (Corporate Finance)
- NEP-RMG-2007-07-13 (Risk Management)
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