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Organizational distance and use of collateral for business loans

Author

Listed:
  • Gabriel Jiménez

    (Banco de España)

  • Vicente Salas-Fumás

    (Universidad de Zaragoza)

  • Jesús Saurina

    (Banco de España)

Abstract

This paper examines the effect of organizational distance (i.e. distance between the headquarters of the bank that grants a loan and the location of the borrower) on the use of collateral for business loans by Spanish banks on the basis of the recent lender based theory of collateral [Inderst and Mueller (2007)]. We find that, for the average borrower, the use of collateral is higher for loans granted by local lenders than by distant ones. We also show that the difference in the likelihood of collateral in loans granted by local lenders, relative to distant lenders, is higher among older and larger firms and among firms with longer duration of the lender-borrower relationship, than, respectively, younger, smaller firms and shorter duration. We also find that banks use lending technologies that are different for near and for distant firms, in response to organizational diseconomies.

Suggested Citation

  • Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2008. "Organizational distance and use of collateral for business loans," Working Papers 0816, Banco de España.
  • Handle: RePEc:bde:wpaper:0816
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    References listed on IDEAS

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    More about this item

    Keywords

    bank lending technologies; distance; collateral; organizational diseconomies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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