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The suspension of borrowing: an implicit penalty for loan default under imperfect information
Xinhua Gu; Yang Zhang; Xiaolin Qian; Haizhen Guo
2016-12
Source PublicationApplied Economics
ISSN0003-6846
Volume48Issue:60Pages:5882-5896
Abstract

A credit seeker may be suspended from borrowing for a period of time due to a previous default. Such suspension is widely used in bank lending through credit check. Our work analyses the effects of suspension on the investment choice of borrowers under uncertainty and on the lending policy of banks facing asymmetric information. We show that suspension should be tightened at low loan rates, but loosened otherwise, to improve the repayment performance of borrowers. We also show that although credit rationing may not be completely removed due to imperfect information, the excess demand for credit or transitive waiting in the market can actually be attenuated by such efficient use of suspension. Our theoretical predictions are consistent with observed cyclical patterns of changes in lendingrates and suspension severity.

KeywordCredit Rationing Interest Rate Suspension Penalty Imperfect Information
DOIhttps://doi.org/10.1080/00036846.2016.1186797
URLView the original
Indexed BySSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000386602000004
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Cited Times [WOS]:1   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorYang Zhang
AffiliationDepartment of Finance and Business Economics, Faculty of Business Administration, University of Macau, Macao, China
First Author AffilicationFaculty of Business Administration
Corresponding Author AffilicationFaculty of Business Administration
Recommended Citation
GB/T 7714
Xinhua Gu,Yang Zhang,Xiaolin Qian,et al. The suspension of borrowing: an implicit penalty for loan default under imperfect information[J]. Applied Economics,2016,48(60):5882-5896.
APA Xinhua Gu,Yang Zhang,Xiaolin Qian,&Haizhen Guo.(2016).The suspension of borrowing: an implicit penalty for loan default under imperfect information.Applied Economics,48(60),5882-5896.
MLA Xinhua Gu,et al."The suspension of borrowing: an implicit penalty for loan default under imperfect information".Applied Economics 48.60(2016):5882-5896.
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