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The Ideal Loan and the Patterns of Cross-Border Bank Lending

  • Joern Kleinert

    ()

    ( Karl-Franzens University of Graz)

  • Bettina Brueggemann

    ()

    (University of Frankfurt)

  • Esteban Prieto

    ()

    (University of Tuebingen)

A typical loan offer is a differentiated product with various negotiated characteristics (maturity, amount, timing, collateral, disclosure requirements) which involve costs that go beyond the mere interest rate. Taking into account all costs, a firm chooses the cost minimizing loan offer. Based on this decision criterion, we derive the probability of a firm from country i to choose a loan contract from a bank in country j. We use this probability to derive a gravity equation for cross-border bank loans. Finally, we estimate the gravity equation based on the theoretical model controlling for the unobserved heterogeneity proposed by our theoretical model.

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File URL: http://www-classic.uni-graz.at/vwlwww/forschung/RePEc/wpaper/2012-03.pdf
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Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-03.

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Date of creation: Sep 2012
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Handle: RePEc:grz:wpaper:2012-03
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