金融学 外文文献 英文文献 外文翻译 担保的作用和个人担保贷款的关系

金融学

外文文献

英文文献

外文翻译

担保的作用和个人

担保贷款的关系

外文文献原文

Material Source: Hitotsubashi University Author: lichiro uesugi

Role of collateral and personal guarantees in relationship lending:

evidence

from Japan's SME loan market

1 Introduction

A key issue of interest in the recent literature on financial

intermediation has been the role of relationship lending. Relationship

lending is particularly common in the case of small business lending,

because small businesses typically rely on bank loans for a substantial

part of their financing needs but also tend to be informationally opaque.

An important issue in this context is the use of collateral, which is a

common feature of loan contracts between small firms and banks around

the world, and a number of theoretical and empirical studies have

examined why it is so widespread and how it relates to the incentives

for borrowers and lenders and the borrower-lender relationship. For

instance, it has been argued that in the presence of information

asymmetries between creditors and borrowers, collateral may mitigate the

problem of adverse selection (Bester, 1985; 1987) and/or the problem of

moral hazard (Bester, 1994; Boot, Thakor, and Udell, 1991). Collateral

also affects the incentives of creditors, who will use it either as a

substitute for (Manove, Padilla, and Pagano, 2001) or complement to

(Rajan and Winton, 1995; Boot 2000; Longhofer and Santos, 2000)

screening and monitoring efforts. Another aspect of collateral that

studies have concentrated on is that its presence may depend on the

length and intimacy of the relationship between creditors and borrowers

(Boot, 2000; Boot and Thakor, 1994; Sharpe, 1990). Existing empirical

research has yet to reach decisive conclusions about the nature of these

relationships.

This paper seeks to contribute to the existing literature on

collateral using a unique firm-level data set of the small and medium

sized enterprise (SME) loan market in Japan. Explicitly differentiating

physical collateral (such as real estate) and personal guarantees by

business representatives, we investigate how the use of collateral and

personal guarantees affects the incentives of borrowers, lenders, and

the relationship between them. More specifically, we examine the

following three issues. First, we examine whether riskier borrowers are

more likely to be required to provide collateral or personal guarantees.

Second, we investigate how collateral and personal guarantees affect

banks’ monitoring of borrowers. Third, we examine the

1

correlation between the use of collateral and personal guarantees on

the one hand and the closeness of borrower-lender relationships on the

other.

The data set we employ is based mainly on the “Survey of the

Financial Environment” (SFE) conducted by the Small and Medium

Enterprise Agency of Japan in October 2002. In order to focus on firms

that mostly depend on bank loans for their financing, we limit the

sample to firms satisfying the legal definition of an SME in Japan. We

then combine the SFE data for each SME with information on their main

bank obtained from the bank’s financial

statements in order to control for lender characteristics as well.

Furthermore, to control for the effect of government credit guarantees

on collateral and personal guarantees, in the main analysis of this

paper we exclude from the sample all firms that enjoyed any form of

government credit guarantee.

As a result of this screening process, we end up with a sample of

1,702 firms. Our main findings can be summarized as follows. We find

that firms’ riskiness does

not have a significant effect on the

likelihood that collateral is used. Thus, we cannot find firm evidence

that the use of collateral mitigates moral hazard. We find, however,

that banks whose claims are collateralized monitor borrowers more

intensively, and that borrowers who have a long-term relationship with

their main bank are more likely to pledge collateral. These findings

suggest that collateral is complementary to relationship lending. In

contrast, the complementarity between relationship lending and personal

guarantees is weaker.

As far as we know, this is the first empirical study that

systematically examines the role of collateral and personal guarantees

in Japan’s SME loan market. The two main contributions of the paper are

as follows. First, given that Japan is generally considered to have a

relationship-based financial system in which the relationship-lender,

the main bank, plays a central role in corporate financing (Rajan and

Zingales, 2003), the study helps to improve our understanding of the

role of collateral in relationship lending and complements existing

studies that focus on the United States and Europe. Second, and more

importantly, by distinguishing collateral and personal guarantees, the

study detects an important role of collateral in relationship lending

that has not been remarked on much before. As we argue below, although a

typical SME in Japan has a long-term relationship with its main bank, it

actually engages in transactions with several banks, which is not common

in other countries. A possible corollary of this is that because of the

informational

2

free-rider problem it creates, this practice may reduce the main

bank’s incentive to screen and monitor borrowers. Since collateral

defines the order of seniority among creditors, using collateral may

mitigate the free-

rider problem and enhance the main bank’s screening

and monitoring. This incentive effect for the main bank becomes tenuous

for personal guarantees, because personal guarantees do not define the

seniority among creditors. Thus, our work provides empirical evidence on

how collateral affects relationship lenders’ incentives, and

complements previous studies that focus on the problem of borrower

incentives (moral hazard and adverse selection).

The remainder of the paper is organized as follows. Section 2

develops our empirical hypotheses which are based on previous

theoretical models and empirical research. Section 3 describes the data

and variables that are used in the paper, and explains our empirical

model.

Section 4 presents the results of our empirical analysis, and

Section 5 concludes.

2 Empirical hypotheses

2.1 Borrower riskiness

Much of the empirical literature in this field examines theoretical

predictions of asymmetric information models on the relationship between

risk and collateral. If the bank cannot discern borrowers’ riskiness

(hidden information), then collateral may serve as a screening device to

distinguish between borrowers and to mitigate the adverse selection

problem (Bester, 1985). This follows from the observation that a lower-

risk borrower has a greater incentive to pledge collateral than a risky

borrower, because of his lower probability of failure and loss of

collateral. Hence, the lower- risk borrower will choose the contract with

collateral.

On the other hand, if the lender can observe the ex-ante risk, but

there are information asymmetries with regard to actions taken by the

borrower after the loan is extended, collateral potentially provides an

incentive to mitigate moral hazard. Thus, opposite to models focusing on

hidden information, those concentrating on hidden action suggest that it

is observably riskier borrowers that will pledge collateral, because

collateral induces more effort by the borrower (Boot, Thakor, and Udell,

1991), or reduces the incentives of strategic default (Bester, 1994).

Because our data base only contains measures of firms’ observed

riskiness

3

(namely, credit scores), we couch our first empirical hypothesis as

follows:

Hypothesis 1 (H1): The use of collateral is higher among observably

higher-risk (low credit score) borrowers if the lender requires

collateral in order to mitigate the extent of moral hazard.

Alternatively, if borrowers pledge collateral as a signal of their

unobserved high credit quality, then there is negative or no

relationship between the use of collateral and the credit score.

Consistent with the theory of moral hazard, most existing empirical

studies, including Berger and Udell (1990; 1995), have found a positive

relationship between colla

teral and borrowers’ ex

-

ante risk. Jiménez,

Salas and Saurina (2006)

directly test the adverse selection and moral hazard hypotheses by

separating ex-ante and ex-post measures of borrower riskiness, namely

defaults prior to and after the loan origination. Their results suggest

that although observed riskiness increases the likelihood that

collateral is used, there is also a negative association between

collateral and default after the loan has been granted, which is

consistent with the adverse selection argument.

It should be noted that theories of collateral as a solution to

moral hazard and/or adverse selection problems assume collateral is

external to the firm.

Unfortunately, our measure of the incidence of collateral does not

distinguish between firm (inside) collateral and personal (outside)

collateral. Hence, throughout our analysis, we will assume that

collateral is mostly inside, but allow for the fact that there may also

be some outside collateral. As for personal guarantees, they clearly

represent outside collateral.

2.2 Screening and monitoring by the lender

Recent research on collateral also discusses how collateral affects

lenders’ incentives with regard to information production, that is, the

screening of borrowers’

quality and the monitoring of their performance. These theories of

the effect of collateral on lenders’ incentives apply to both inside

and outside collateral. Manove, Padilla, and Pagano (2001), for instance,

argue that, from banks’ point of view, collateral can be considered as

a substitute for the evaluation of the actual risk of a borrower. Thus,

banks that are highly protected by collateral may perform less screening

of the projects they finance than is socially optimal.