Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting
Posted: 10 Aug 1998
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
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