Private Information and Lender Discretion Across Time and Institutions

53 Pages Posted: 12 Oct 2018 Last revised: 13 Oct 2018

See all articles by Gene Ambrocio

Gene Ambrocio

Bank of Finland

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: October 10, 2018

Abstract

We assess the extent to which discretion, unexplained variations in the terms of a loan contract, has varied across time and lending institutions and show that part of this discretion is due to private information that lenders have on their borrowers. We find that discretion is lower for secured loans and loans granted by a larger group of lenders, and is larger when the lenders are larger and more profitable. Over time, discretion is also lower around recessions although the private information content is higher. The results suggest that bank discretionary and private information acquisition behaviour may be important features of the credit cycle.

JEL Classification: D82, G14, G21, G28

Suggested Citation

Ambrocio, Gene and Hasan, Iftekhar, Private Information and Lender Discretion Across Time and Institutions (October 10, 2018). Bank of Finland Research Discussion Paper No. 17/2018, Available at SSRN: https://ssrn.com/abstract=3265079

Gene Ambrocio (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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