Projects per year
We propose a heteroscedastic regression model to identify the determinants of the dispersion in interest rates on loans granted to small and medium sized enterprises. We interpret unexplained deviations as evidence of the banks’ discretionary use of market power in the loan rate setting process. “Discretion” in the loan-pricing process is most important, we find, if: (i) loans are small and uncollateralized; (ii) firms are small, risky and difficult to monitor; (iii) firms’ owners are older, and, (iv) the banking market where the firm operates is large and highly concentrated. We also find that the weight of “discretion” in loan rates of small credits to opaque firms has decreased somewhat over the last fifteen years, consistent with the proliferation of information-technologies in the banking industry. Overall, our results reflect the relevance in the credit market of the costs firms face in searching information and switching lenders.
|Place of Publication||Tilburg|
|Number of pages||42|
|Publication status||Published - 2007|
|Name||TILEC Discussion Paper|
- financial intermediation
- loan rates
- price discrimination
- variance analysis
FingerprintDive into the research topics of 'Rules versus Discretion in Loan Rate Setting'. Together they form a unique fingerprint.
- 1 Active
Market Design and Institutional Matters
Barendrecht, M., van Boom, W. H., Eijlander, P. & Manunza, E.
1/09/02 → …
Project: Research project