The Effects of the Bank-Internal Ratings on the Loan Maturity
25 Pages Posted: 3 Mar 2007
Date Written: March 1, 2007
The paper focuses on the effects of three different internal bank ratings - Risk, Property and Creditworthiness Ratings - for loan maturity. We use a sample of about 5,000 loans given to sole proprietors and corporate borrowers by two German banks from January 2003 to July 2005. The estimation results for corporate borrowers are consistent with Diamond's (1991) predictions of a non-monotonic relationship between ratings and maturity. The best rated and the worst rated loans tend to have shorter maturities than loans with an intermediate rating. However, our results for sole proprietors differ from the predictions of Diamond and the majority of the empirical literature. We find a negative association between ratings and the maturity of the loans given to sole proprietors.
Keywords: C25, D82, G20
JEL Classification: loan maturity, internal bank ratings
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