How Law and Institutions Shape Financial Contracts: The Case of Bank Loans

42 Pages Posted: 16 Feb 2004

See all articles by Jun "QJ" Qian

Jun "QJ" Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2006

Abstract

Legal and institutional differences shape the ownership and terms of bank loans across the world. With strong creditor protection, we show that loans have concentrated ownership, long maturity and low interest rates. The impact of creditor rights on loans also depends on borrower characteristics such as the size and tangibility of assets. Foreign banks appear especially sensitive to the legal and institutional environment. Their ownership declines relative to domestic banks as creditor protection falls. Our multi-dimensional empirical model paints a more complete picture of how financial contracts respond to the legal and institutional environment than existing studies.

Keywords: Creditor rights, institution, bank loan, collateral, maturity

JEL Classification: K0, G2, O5

Suggested Citation

Qian, Jun and Strahan, Philip E., How Law and Institutions Shape Financial Contracts: The Case of Bank Loans (August 12, 2006). AFA 2005 Philadelphia Meetings Paper, Available at SSRN: https://ssrn.com/abstract=935927 or http://dx.doi.org/10.2139/ssrn.501662

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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