IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v41y2009i5p935-960.html
   My bibliography  Save this article

Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market

Author

Listed:
  • ARITO ONO
  • IICHIRO UESUGI

Abstract

This paper investigates the determinants of the use of collateral and personal guarantees in Japan's SME loan market. We find that firms' riskiness does not have a significant effect on the likelihood that collateral is used. We find, however, that main banks whose claims are collateralized monitor borrowers more intensively and that borrowers who have a long-term relationship with their main banks are more likely to pledge collateral. These findings are consistent with the theory that the use of collateral is effective in raising the bank's seniority and enhances its screening and monitoring. This incentive effect for the bank becomes tenuous for personal guarantees. Copyright (c) 2009 The Ohio State University.

Suggested Citation

  • Arito Ono & Iichiro Uesugi, 2009. "Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 935-960, August.
    • Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:5:p:935-960
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bester, Helmut, 1994. "The Role of Collateral in a Model of Debt Renegotiation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 72-86, February.
    2. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    3. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages 32-53, February.
    4. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
    5. Longhofer, Stanley D. & Santos, Joao A. C., 2000. "The Importance of Bank Seniority for Relationship Lending," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 57-89, January.
    6. Boot, Arnoud W A & Thakor, Anjan V & Udell, Gregory F, 1991. "Secured Lending and Default Risk: Equilibrium Analysis, Policy Implications and Empirical Results," Economic Journal, Royal Economic Society, vol. 101(406), pages 458-472, May.
    7. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    8. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
    9. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
    10. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    11. Elsas, Ralf & Krahnen, Jan Pieter, 2000. "Collateral, default risk, and relationship lending: An empirical study on financial contracting," CFS Working Paper Series 1999/13, Center for Financial Studies (CFS).
    12. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
    13. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    14. Pozzolo, Alberto Franco, 2004. "The Role of Guarantees in Bank Lending," Economics & Statistics Discussion Papers esdp04021, University of Molise, Department of Economics.
    15. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
    16. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    17. Brick, Ivan E. & Palia, Darius, 2007. "Evidence of jointness in the terms of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 452-476, July.
    18. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
    19. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
    20. Harhoff, Dietmar & Körting, Timm, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CEPR Discussion Papers 1917, C.E.P.R. Discussion Papers.
    21. Rajan, Raghuram & Winton, Andrew, 1995. "Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-1146, September.
    22. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
    23. Voordeckers, Wim & Steijvers, Tensie, 2006. "Business collateral and personal commitments in SME lending," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3067-3086, November.
    24. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Menkhoff, Lukas & Neuberger, Doris & Suwanaporn, Chodechai, 2006. "Collateral-based lending in emerging markets: Evidence from Thailand," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 1-21, January.
    2. Berger, Allen N. & Espinosa-Vega, Marco A. & Frame, W. Scott & Miller, Nathan H., 2011. "Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 55-70, January.
    3. Yaldız Hanedar, Elmas & Broccardo, Eleonora & Bazzana, Flavio, 2014. "Collateral requirements of SMEs: The evidence from less-developed countries," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 106-121.
    4. Menkhoff, Lukas & Neuberger, Doris & Rungruxsirivorn, Ornsiri, 2012. "Collateral and its substitutes in emerging markets’ lending," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 817-834.
    5. Elmas Yaldiz Hanedar & Eleonora Broccardo & Flavio Bazzana, 2012. "Collateral Requirements of SMEs:The Evidence from Less–Developed Countries," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0034, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    6. Kislat, Carmen & Menkhoff, Lukas & Neuberger, Doris, 2013. "The use of collateral in formal and informal lending," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79765, Verein für Socialpolitik / German Economic Association.
    7. Mariarosaria Agostino & Francesco Trivieri, 2017. "Collateral in lending relationships. A study on European SMEs microdata," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(3), pages 339-356, May.
    8. Tensie Steijvers & Wim Voordeckers, 2009. "Collateral And Credit Rationing: A Review Of Recent Empirical Studies As A Guide For Future Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 924-946, December.
    9. Berger, Allen N. & Scott Frame, W. & Ioannidou, Vasso, 2011. "Tests of ex ante versus ex post theories of collateral using private and public information," Journal of Financial Economics, Elsevier, vol. 100(1), pages 85-97, April.
    10. Chala, Alemu Tulu & Forssbaeck, Jens, 2018. "Does Collateral Reduce Loan-Size Credit Rationing? Survey Evidence," Working Papers 2018:36, Lund University, Department of Economics.
    11. Tensie Steijvers & Wim Voordeckers & Koen Vanhoof, 2010. "Collateral, relationship lending and family firms," Small Business Economics, Springer, vol. 34(3), pages 243-259, April.
    12. Bing Xu & Honglin Wang & Adrian Van Rixtel, 2015. "Do banks extract informational rents through collateral?," BIS Working Papers 522, Bank for International Settlements.
    13. Leonardo Becchetti & Melody Garcia, 2008. "Do collateral theories work in social banking ?," CEIS Research Paper 131, Tor Vergata University, CEIS, revised 07 Nov 2008.
    14. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
    15. Meles, Antonio & Porzio, Claudio & Sampagnaro, Gabriele & Starita, Maria Grazia & Verdoliva, Vincenzo, 2017. "Collateralization of business loans: Testing the prediction of theories," Research in International Business and Finance, Elsevier, vol. 42(C), pages 922-938.
    16. Bodenhorn, Howard, 2003. "Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 485-505, August.
    17. Inderst, Roman & Mueller, Holger M., 2007. "A lender-based theory of collateral," Journal of Financial Economics, Elsevier, vol. 84(3), pages 826-859, June.
    18. Ono, Arito & Sakai, Koji & Uesugi, Iichiro, 2012. "The effects of collateral on firm performance," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 84-109.
    19. Gareth Anderson & Saleem Bahaj & Matthieu Chavaz & Angus Foulis & Gabor Pinter, 2023. "Lending Relationships and the Collateral Channel," Review of Finance, European Finance Association, vol. 27(3), pages 851-887.
    20. Kano, Masaji & Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2011. "Information verifiability, bank organization, bank competition and bank-borrower relationships," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 935-954, April.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:41:y:2009:i:5:p:935-960. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.