|Title:||Collateral, loan guarantees, and the lenders' incentives to resolve financial distress||Authors:||YEH-NING CHEN||Keywords:||Collateral | Financial distress | Loan guarantee | Renegotiation||Issue Date:||1-Feb-2006||Journal Volume:||46||Journal Issue:||1||Start page/Pages:||1||Source:||Quarterly Review of Economics and Finance||Abstract:||
This paper proposes that the timing for when collateral is pledged will affect the lenders' incentives to resolve financial distress. It demonstrates that, if the amount of collateral pledged in a loan contract exceeds a critical value, the borrower's project may be inefficiently liquidated once he becomes financially distressed. It also shows that a fairly priced loan guarantee provided by a third party can partially alleviate this inefficient liquidation problem. This paper predicts that riskier borrowers will pledge more collateral, which is consistent with the empirical findings of Berger and Udell [Berger, A. N., & Udell, G. F. (1990). Collateral, loan quality, and bank risk. Journal of Monetary Economics, 25, 21-42] and Leeth and Scott [Leeth, J. D., & Scott, J. A. (1989). The incidence of secured debt: evidence from the small business community. Journal of Financial and Quantitative Analysis, 24, 379-394]. © 2005 Board of Trustees of the University of Illinois. All rights reserved.
|Appears in Collections:||財務金融學系|
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