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Owner Guarantees, Observed and Unobserved Risks, and Bank Lending Spreads

Author

Listed:
  • Fábio Dias Duarte

    (School of Economics and Management and cef.up)

  • Ana Paula Matias Gama

    (Universidade da Beira Interior and NECE)

  • Mohamed Azzim Gulamhussen

    (Instituto Universitário de Lisboa (ISCTE-IUL), Business Research Unit (BRU-IUL))

Abstract

In this paper, we examine the influence of owner guarantees on loan rates. Other studies on the influence of business collateral have used survey and credit register data to establish this link. They support it with the pre-lending information theory and post-lending incentive theory and find that the latter predominates the former. Thus, we measure observed and unobserved risks on bank lending spreads negotiated over the counter to show the co-existence of both theories. The main findings and robustness tests show that owner guarantees reduce bank lending spreads for safe but not risky firms, supporting the pre-lending information theory rather than the post-lending incentive theory. These findings underscore the role of owner guarantees in allaying the information problems the bank confronts prior to lending.

Suggested Citation

  • Fábio Dias Duarte & Ana Paula Matias Gama & Mohamed Azzim Gulamhussen, 2025. "Owner Guarantees, Observed and Unobserved Risks, and Bank Lending Spreads," Journal of Financial Services Research, Springer;Western Finance Association, vol. 68(2), pages 241-281, October.
    • Handle: RePEc:kap:jfsres:v:68:y:2025:i:2:d:10.1007_s10693-024-00434-w
    DOI: 10.1007/s10693-024-00434-w
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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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