Does Bank Monitoring Influence Loan Contract Terms?

Australian Prudential Regulation Authority Working Paper No. 2002-01

42 Pages Posted: 27 Dec 2004

See all articles by Anthony D.F. Coleman

Anthony D.F. Coleman

affiliation not provided to SSRN

Neil Esho

Australian Prudential Regulation Authority

Ian G. Sharpe

Australian Prudential Regulation Authority; UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: December 2004

Abstract

This paper examines the impact of bank monitoring on loan pricing and maturity using new proxies for monitoring ability based on the labor input into the monitoring process as well as traditional output-based measures of monitoring. We show, in out-of-sample tests, that an input-based monitoring proxy and the output proxies are significant determinants of future loan quality. Controlling for borrower characteristics and other loan contract features, we find strong evidence that the input-based monitoring measure is a significant determinant of loan pricing and maturity. However, traditional output-based measures of monitoring ability are significant in determining loan maturity, but not loan pricing.

Keywords: Bank monitoring, loan pricing, loan maturity

JEL Classification: G21

Suggested Citation

Coleman, Anthony D.F. and Esho, Neil and Sharpe, Ian G., Does Bank Monitoring Influence Loan Contract Terms? (December 2004). Australian Prudential Regulation Authority Working Paper No. 2002-01, Available at SSRN: https://ssrn.com/abstract=633901 or http://dx.doi.org/10.2139/ssrn.633901

Anthony D.F. Coleman

affiliation not provided to SSRN

Neil Esho (Contact Author)

Australian Prudential Regulation Authority ( email )

Level 26, 400 George Street
Sydney, New South Wales 2052
Australia
+612 9210 3345 (Phone)
+612 9210 3418 (Fax)

Ian G. Sharpe

Australian Prudential Regulation Authority ( email )

Level 26, 400 George Street
Sydney, NSW 2000
Australia
612 92103638 (Phone)

UNSW Australia Business School, School of Banking and Finance ( email )

Kensington
Quadrangle Building Level 3
Sydney NSW 2052
Australia
61 2 9385 5856 (Phone)
61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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