Matching Banks and Firms in the Loan Market: Evidence from Similarity in Risk Attitudes

59 Pages Posted: 9 Jul 2019

See all articles by Po-Hsin Ho

Po-Hsin Ho

National Central University at Taiwan - Department of Finance

Chia‐Wei Huang

Yuan Ze University

Chih-Yung Lin

National Chiao-Tung University

Ju-Fang Yen

National Taipei University

Date Written: July 7, 2019

Abstract

This study investigates the effect of similarity in risk attitudes between lenders and borrowers on loan contracting. We find that when banks and lenders have similar risk attitudes they are more likely to sign loan contracts. Moreover, such contracts are associated with lower spreads, longer maturity, larger size, and less collateral, suggesting that borrowers can obtain favorable loans when they obtain financing from banks with similar risk attitudes. Meanwhile, similar risk attitudes can also benefit lenders by generating more repeat loans and fewer loan covenant violations in the future. The evidence suggests that closeness of risk attitude can benefit both lenders and borrowers in loan contracting.

Keywords: Risk attitude, bank loan contract, bank-borrower match, financing cost, future business opportunities.

JEL Classification: G21, G32, G33, G41

Suggested Citation

Ho, Po-Hsin and Huang, Chia-Wei and Lin, Chih-Yung and Yen, Ju-Fang, Matching Banks and Firms in the Loan Market: Evidence from Similarity in Risk Attitudes (July 7, 2019). Available at SSRN: https://ssrn.com/abstract=3416013 or http://dx.doi.org/10.2139/ssrn.3416013

Po-Hsin Ho

National Central University at Taiwan - Department of Finance ( email )

No. 300, Zhongda Rd.
Zhongli District
Taoyuan City, 32001
Taiwan

Chia-Wei Huang

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Chih-Yung Lin (Contact Author)

National Chiao-Tung University ( email )

Taiwan

Ju-Fang Yen

National Taipei University ( email )

151, University Rd.,
San Shia District
New Taipei City, Taiwan 23741
Taiwan

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