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How Do Relationship Lenders Price Loans to Small Firms?: "Hold-Up" Costs, Transparency, and Private and Public Security

Listed author(s):
  • WATANABE Wako

We conduct a comprehensive examination on how relationship lenders price loans to small opaque firms using the rich matched data set of Japanese firms and their main banks. Our major findings are: 1. Neither measures for a borrower firm's transparency to the public (outsiders) nor measures for the firm's transparency to its main bank affect the lending rate. 2. A bank suffering from a greater ratio of non-performing loans to total asset charges a higher lending rate. 3. Treating the non-price terms of a loan contract as endogenous variables is crucial in consistently estimating the lending rate.

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File URL: http://www.rieti.go.jp/jp/publications/dp/07e058.pdf
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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07058.

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Length: 59 pages
Date of creation: Oct 2007
Handle: RePEc:eti:dpaper:07058
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