Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting

Posted: 10 Aug 1998

See all articles by Mitch Post

Mitch Post

Board of Governors of the Federal Reserve System

Steven A. Sharpe

Federal Reserve Board - Research & Statistics

Mark Carey

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section

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Abstract

This paper establishes empirically the existence of specialization in private-market corporate lending, adding a new dimension to the public versus private debt distinctions now common in the literature. Comparing a large sample of corporate loans made by banks and finance companies, we find the two types of intermediary are equally likely to finance information-problematic firms. However, finance companies tend to serve observably riskier borrowers, particularly more leveraged borrowers. Evidence supports both regulatory and reputation-based explanations for this specialization. In passing, we shed light on various theories of debt contracting and intermediation and also present facts about finance companies, which have received little attention.

JEL Classification: G20, G32

Suggested Citation

Post, Mitch and Sharpe, Steven A. and Carey, Mark, Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting. Journal of Finance, Vol. 53 No. 3, June 1998. Available at SSRN: https://ssrn.com/abstract=100312

Mitch Post

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Steven A. Sharpe

Federal Reserve Board - Research & Statistics ( email )

20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2875 (Phone)
202-452-3819 (Fax)

Mark Carey (Contact Author)

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2784 (Phone)
202-452-5295 (Fax)

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