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Title: Creditor rights, enforcement and bank loans
Authors: Bae, Kee-Hong
Goyal, Vidhan K.
Keywords: Property rights
Creditor rights
Investor protection
Loan amounts
Loan spreads
Syndicate structure
Issue Date: Apr-2009
Citation: The Journal of finance, v. 64, iss. 2, p. 823-860
Abstract: We examine if differences in legal protection affect loan amounts, maturity and interest rate spreads on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan quantities, shortening loan maturities and increasing loan spreads. These effects are both statistically significant and economically large. Average loan sizes will be $53 million larger, maturities will be 2.5 years longer, and spreads will be 67 basis points lower, if a borrower moves from a country with the weakest protection of property rights to a country with the strongest protection of property rights, all else equal. While stronger creditor rights reduce spreads, they do not seem to matter for loan sizes and loan maturities. Overall, we show that variations in enforceability of contracts matter a great deal more for how loan are structured and how they are priced.
Rights: This is a preprint article published in the Journal of Finance © copyright 2009 Wiley-Blackwell. The original journal article is posted on the journal's web site at
Appears in Collections:FINA Journal/Magazine Articles

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