Journal article
Loan collateral, corporate investment, and business cycle
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 …
Authors
Aivazian V; Gu X; Qiu J; Huang B
Journal
Journal of Banking & Finance, Vol. 55, , pp. 380–392
Publisher
Elsevier
Publication Date
June 2015
DOI
10.1016/j.jbankfin.2014.04.032
ISSN
0378-4266