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Nonbank Lending

Author

Listed:
  • Chernenko, Sergey

    (Purdue U)

  • Erel, Isil

    (OH State U)

  • Prilmeier, Robert

    (Tulane U)

Abstract

We provide novel systematic evidence on the terms of direct lending by nonbank financial institutions. Analyzing hand-collected data for a random sample of publicly-traded middle-market firms during the 2010-2015 period, we find that nonbank lending is widespread, with 32% of all loans being extended by nonbanks. Nonbank borrowers are smaller, more R&D intensive, and significantly more likely to have negative EBITDA. Firms are also more likely to borrow from a nonbank lender if local banks are poorly capitalized and less concentrated. Nonbank lenders are less likely to monitor by including financial covenants in their loans, but appear to engage in more ex-ante screening. Controlling for firm and loan characteristics, nonbank loans carry about 200 basis points higher interest rates. Using fuzzy regression discontinuity design and matching techniques generates similar results. Overall, our results provide evidence of market segmentation in the commercial loan market, where bank and nonbank lenders utilize different lending techniques and cater to different types of borrowers.

Suggested Citation

  • Chernenko, Sergey & Erel, Isil & Prilmeier, Robert, 2018. "Nonbank Lending," Working Paper Series 2018-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2018-13
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    File URL: http://www.ssrn.com/abstract=3220527
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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