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Loan collateral, corporate investment, and business cycle
Varouj Aivazian1; Xinhua Gu2; Jiaping Qiu3; Bihong Huang2
2015-06-01
Source PublicationJournal of Banking and Finance
ISSN0378-4266
Volume55Pages:380-392
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.

KeywordDynamic Choice Business Cycle Collateral Policy Corporate Investment Loan Interest Rates
DOIhttps://doi.org/10.1016/j.jbankfin.2014.04.032
URLView the original
Indexed BySSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectBusiness, Finance ; Economics
WOS IDWOS:000356206700026
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Cited Times [WOS]:2   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorBihong Huang
Affiliation1.University of Toronto, Canada
2.University of Macau, Macao
3.McMaster University, Canada
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Varouj Aivazian,Xinhua Gu,Jiaping Qiu,et al. Loan collateral, corporate investment, and business cycle[J]. Journal of Banking and Finance,2015,55:380-392.
APA Varouj Aivazian,Xinhua Gu,Jiaping Qiu,&Bihong Huang.(2015).Loan collateral, corporate investment, and business cycle.Journal of Banking and Finance,55,380-392.
MLA Varouj Aivazian,et al."Loan collateral, corporate investment, and business cycle".Journal of Banking and Finance 55(2015):380-392.
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