Home > Research > Publications & Outputs > Foreigners vs. natives

Electronic data

  • Author final version

    Accepted author manuscript, 1 MB, PDF document

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

Links

Text available via DOI:

View graph of relations

Foreigners vs. natives: bank lending technologies and loan pricing

Research output: Contribution to journalJournal article

Published
Close
<mark>Journal publication date</mark>08/2018
<mark>Journal</mark>Management Science
Issue number8
Volume64
Number of pages2
Pages (from-to)3469-3970
Publication statusPublished
Early online date19/04/17
Original languageEnglish

Abstract

Can distance-related information asymmetries in credit markets be overcome with contract design and credit scoring models? To answer this question, we explore differences in foreign and domestic banks’ credit contract terms and pricing models. Using a sample of firms that borrow from both domestic and foreign banks in the same month, we show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks. Foreign banks also base their pricing on internal credit ratings and collateral pledges, while domestic banks price according to the length, depth and breadth of their relationship with a firm. These findings confirm that foreign banks can overcome informational disadvantages using contract design and credit scoring models. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools.