Is there adverse selection in the credit market?
Despite a huge theoretical literature on credit markets charaterized by asymmetric information little is known about the structure of real world credit contracts or the nature of the underlying informational regime on which they are predicated. A model is constructed and tested that enables delineation of credit contract features and establishment of the nature of the underlying informational regime . Large sample estimates based on individual loans from a major UK bank are shown to support both the symmetric and asymmetric information variants of the model: better borrowers get larger loans and lower interest rates; collateral provision and loan size reduce the interest rate paid. However, consistent with a regime of symmetric information collateral levels are found to be independent of borrower type. Finally, in line with the insurance literature, the bank is shown to use qualitative as well as quantitative information in the structuring of loan contracts to small businesses.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 3 (2001)
Issue (Month): 3 (July)
|Contact details of provider:|| Web page: http://www.tandfonline.com/TVEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/TVEC20|
When requesting a correction, please mention this item's handle: RePEc:taf:veecee:v:3:y:2001:i:3:p:215-238. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.