Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans

50 Pages Posted: 10 Dec 2019 Last revised: 31 Jan 2020

See all articles by Mehdi Beyhaghi

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: January 30, 2020

Abstract

Using an extensive database of bank portfolios collected by the Federal Reserve, this study provides the first comprehensive analysis of third-party credit guarantees in the U.S. corporate loan market. I find that over one-third of corporate loans issued by U.S. banks are fully guaranteed by legal entities separate from borrowing firms. Using an empirical strategy that accounts for time-varying firm and lender effects, I measure the magnitudes by which the existence of a third-party credit guarantee affects loan pricing, loan risk, and loan performance. Moreover, I find that third-party guarantees both substitute and complement collateral in U.S. corporate lending.

Keywords: Credit Guarantee, FR-Y14 Data, Cost of Debt, LGD, Loan Performance

JEL Classification: G21, G32

Suggested Citation

Beyhaghi, Mehdi, Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans (January 30, 2020). Available at SSRN: https://ssrn.com/abstract=3492106 or http://dx.doi.org/10.2139/ssrn.3492106

Mehdi Beyhaghi (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
16
Abstract Views
181
PlumX Metrics