The Effects of the Bank-Internal Ratings on the Loan Maturity

25 Pages Posted: 3 Mar 2007

See all articles by Nataliya Fedorenko

Nataliya Fedorenko

German Institute for Economic Research (DIW Berlin)

Oleksandr Talavera

Swansea University - School of Management

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin); JIBS

Date Written: March 1, 2007

Abstract

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

Suggested Citation

Fedorenko, Nataliya and Talavera, Oleksandr and Schaefer, Dorothea, The Effects of the Bank-Internal Ratings on the Loan Maturity (March 1, 2007). Available at SSRN: https://ssrn.com/abstract=967267 or http://dx.doi.org/10.2139/ssrn.967267

Nataliya Fedorenko (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Oleksandr Talavera

Swansea University - School of Management ( email )

Haldane Building
Singleton Park
Swansea, SA2 8PP
United Kingdom

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8978 9162 (Phone)
+49 30 8978 9104 (Fax)

JIBS ( email )

Jönköping, 55111
Sweden

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