How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans

Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower c...

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Bibliographic Details
Published in:The Journal of finance (New York) 2007-12, Vol.62 (6), p.2803-2834
Main Authors: QIAN, JUN, STRAHAN, PHILIP E.
Format: Article
Language:English
Subjects:
Access to credit
Bank credit
Bank loans
Bank operations
Banking law
Bankruptcy Code
Borrowing
Contract law
Contracts
Credit market
Creditors
Creditors rights
Debt contracts
Financial instruments
Foreign banks
International banks
Legal aspects
Lenders
Loan rates
Loans
Ownership
Studies
U.S.A
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Summary:Legal and institutional differences shape the ownership and terms of bank loans across the world. We show that under strong creditor protection, loans have more concentrated ownership, longer maturities, and lower interest rates. Moreover, the impact of creditor rights on loans depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment, with their ownership declining relative to domestic banks as creditor protection falls. Our multidimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2007.01293.x