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The Effects of the Bank-Internal Ratings on the Loan Maturity

  • Nataliya Fedorenko
  • Dorothea Schäfer
  • Oleksandr Talavera

The 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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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 704.

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Length: 25 p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwwpp:dp704
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  17. Guedes, Jose & Opler, Tim, 1996. " The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-33, December.
  18. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
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  22. Krahnen, Jan Pieter & Weber, Martin, 2000. "Generally accepted rating principles: A primer," CFS Working Paper Series 2000/02, Center for Financial Studies (CFS).
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