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Foreigners vs. natives: bank lending technologies and loan pricing

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Foreigners vs. natives : bank lending technologies and loan pricing. / Beck, Thorsten; Ioannidou, Vasso; Schäfer , Larissa.

In: Management Science, Vol. 64, No. 8, 08.2018, p. 3469-3970.

Research output: Contribution to journalJournal articlepeer-review

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Beck, T, Ioannidou, V & Schäfer , L 2018, 'Foreigners vs. natives: bank lending technologies and loan pricing', Management Science, vol. 64, no. 8, pp. 3469-3970. https://doi.org/10.1287/mnsc.2016.2706

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Beck, Thorsten ; Ioannidou, Vasso ; Schäfer , Larissa. / Foreigners vs. natives : bank lending technologies and loan pricing. In: Management Science. 2018 ; Vol. 64, No. 8. pp. 3469-3970.

Bibtex

@article{3d63473fcdce44d8b2ae082adb1b18cc,
title = "Foreigners vs. natives: bank lending technologies and loan pricing",
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{\textquoteright} 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.",
keywords = "bank financing, foreign ownership, lending technologies, loan pricing",
author = "Thorsten Beck and Vasso Ioannidou and Larissa Sch{\"a}fer",
year = "2018",
month = aug,
doi = "10.1287/mnsc.2016.2706",
language = "English",
volume = "64",
pages = "3469--3970",
journal = "Management Science",
issn = "0025-1909",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "8",

}

RIS

TY - JOUR

T1 - Foreigners vs. natives

T2 - bank lending technologies and loan pricing

AU - Beck, Thorsten

AU - Ioannidou, Vasso

AU - Schäfer , Larissa

PY - 2018/8

Y1 - 2018/8

N2 - 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.

AB - 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.

KW - bank financing

KW - foreign ownership

KW - lending technologies

KW - loan pricing

U2 - 10.1287/mnsc.2016.2706

DO - 10.1287/mnsc.2016.2706

M3 - Journal article

VL - 64

SP - 3469

EP - 3970

JO - Management Science

JF - Management Science

SN - 0025-1909

IS - 8

ER -