Loan collateral,corporate investment,and business cycle |
| |
| Affiliation: | 1. Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai, PR China;2. Glorious Sun School of Business and Management, Donghua University, Shanghai, PR China;3. Carl H. Lindner College of Business, University of Cincinnati, Cincinnati, OH, USA;4. The University of Sydney Business School, The University of Sydney, Sydney, NSW, Australia;1. Department of Mathematics and Statistics, York University, Toronto, Ontario M3J 1P3, Canada;2. Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Ontario N2L 5A7, Canada;3. Department of Statistical and Actuarial Sciences, University of Western Ontario, London, Ontario N6A 5B7, Canada;1. Center for Applied Mathematics, Cornell University, 657 Rhodes Hall, Ithaca, NY 14853 USA;2. School of Operations Research and Information Engineering, Cornell University, 222 Rhodes Hall, Ithaca, NY 14853, USA |
| |
| Abstract: | Collateral and loan rates are observed to be highly cyclical in their use for bank lending. The effects of such cyclicality on corporate investment are analyzed in this paper using a dynamic model. We find that more collateral causes firms to select riskier (/safer) projects if the loan rate rises above (/falls below) the expected investment return. We show that the incentive effect of loan rates becomes stronger with greater collateral, with the two credit terms having larger incentive effects on lower-quality firms. These results offer a new explanation for why lenient collateral policies are associated with rising loan rates in economic upturns but stricter collateral requirements come with falling loan rates during downturns. |
| |
| Keywords: | Dynamic choice Corporate investment Business cycle Collateral policy Loan interest rates |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
