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Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting (1998)
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| Venue: | Journal of Finance |
BibTeX
@ARTICLE{Mitch98doescorporate,
author = {Mark Carey Mitch and Mark Carey and Mitch Post and Steven A. Sharpe},
title = {Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting},
journal = {Journal of Finance},
year = {1998},
volume = {53},
pages = {845--878}
}
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Abstract
This paper establishes empirically that specialization in private-market corporate lending exists, adding a new dimension to the public vs. private debt distinctions now common in the literature on debt contracting and financial intermediation. Using a large database of individual loans, we compare lending by finance companies to that by banks. The evidence implies that it is intermediaries in general that are special in solving information problems, not banks in particular. But lending by the two types of institutions is not identical. Finance companies tend to serve observably riskier borrowers, especially highly leveraged borrowers, although banks and finance companies do compete across the spectrum of borrower risk. The evidence supports both regulatory and explanations for this specialization and perhaps an explanation based on institutional differences in borrower monitoring and control. In passing, we shed light on various theories of debt contracting and intermediation and als...
Keyphrases
finance company private debt contracting finance company differ corporate lending debt contracting borrower monitoring public v institutional difference leveraged borrower private debt distinction new dimension private-market corporate lending exists large database information problem financial intermediation various theory borrower risk individual loan
