Creditor Rights, Enforcement, and Bank Loans

53 Pages Posted: 8 Aug 2003 Last revised: 28 Sep 2008

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: October 15, 2007

Abstract

We examine whether differences in legal protection affect the size, maturity, and interest rate spread on loans to borrowers in 48 countries. Results show that banks respond to poor enforceability of contracts by reducing loan amounts, shortening loan maturities, and increasing loan spreads. These effects are both statistically significant and economically large. While stronger creditor rights reduce spreads, they do not seem to matter for loan size and maturity. Overall, we show that variation in enforceability of contracts matters a great deal more to how loans are structured and how they are priced.

Keywords: property rights, creditor rights, law, enforcement, investor protection, loan spreads, syndicate structure

JEL Classification: D23, G21, G32, K42

Suggested Citation

Bae, Kee-Hong and Goyal, Vidhan K., Creditor Rights, Enforcement, and Bank Loans (October 15, 2007). Available at SSRN: https://ssrn.com/abstract=423820 or http://dx.doi.org/10.2139/ssrn.423820

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Register to save articles to
your library

Register

Paper statistics

Downloads
788
rank
28,452
Abstract Views
3,612
PlumX Metrics