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The impact of guarantees on bank loan interest rates

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  • Giorgio Calcagnini
  • Fabio Farabullini
  • Germana Giombini

Abstract

This article analyses the role of guarantees on loan interest rates of Italian firms before and during the recent financial crisis. It improves on the existing literature by using explicit measure of collateral and personal guarantees and by modelling unobserved heterogeneity between low-level groups (banks) within a single nested panel data set. Our database covers the period 2006--2009 for a total of 560 339 firms and 214 banks.Our analysis shows that collateral guarantee affects the cost of credit for Italian firms by systematically reducing the interest rate of secured loans. This effect was larger during the crisis. Personal guarantees show no systematic effect on interest rates, but favour firms' access to credit. Furthermore, guarantees are a more powerful instrument for riskier borrowers than for safer borrowers, i.e., the decrease in interest rates due to the presence of guarantees is larger for the former than for the latter.

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  • Giorgio Calcagnini & Fabio Farabullini & Germana Giombini, 2014. "The impact of guarantees on bank loan interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 24(6), pages 397-412, March.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:6:p:397-412
    DOI: 10.1080/09603107.2014.881967
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    2. Saleem Bahaj & Angus Foulis & Gabor Pinter, 2020. "Home Values and Firm Behavior," American Economic Review, American Economic Association, vol. 110(7), pages 2225-2270, July.
    3. Bellucci, Andrea & Borisov, Alexander & Giombini, Germana & Zazzaro, Alberto, 2021. "Estimating the relationship between collateral and interest rate: A comparison of methods," Finance Research Letters, Elsevier, vol. 43(C).
    4. Bin Liu & Charles Cullinan & Junrui Zhang & Fangjun Wang, 2016. "Loan guarantees and the cost of debt: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 48(38), pages 3626-3643, August.
    5. Fangjun Wang & Luying Xu & Fei Guo & Junrui Zhang, 2020. "Loan Guarantees, Corporate Social Responsibility Disclosure and Audit Fees: Evidence from China," Journal of Business Ethics, Springer, vol. 166(2), pages 293-309, October.
    6. Giorgio Calcagnini & Germana Giombini & Elisa Lenti, 2015. "Gender Differences in Bank Loan Access: An Empirical Analysis," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(2), pages 193-217, July.
    7. Clara Cardone-Riportella & Marta Garc a-Mandaloniz, 2017. "Does Recent Regulation Improve (or not) the Spanish Mutual Guarantee System?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 515-523.
    8. Rodrigo Martín-García & Jorge Morán Santor, 2021. "Public guarantees: a countercyclical instrument for SME growth. Evidence from the Spanish Region of Madrid," Small Business Economics, Springer, vol. 56(1), pages 427-449, January.
    9. Bahaj, Saleem A. & Foulis, Angus & Pinter, Gabor, 2016. "The residential collateral channel," LSE Research Online Documents on Economics 86240, London School of Economics and Political Science, LSE Library.
    10. Bellucci, Andrea & Borisov, Alexander & Giombini, Germana & Zazzaro, Alberto, 2019. "Collateralization and distance," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 205-217.
    11. Andrea Bellucci & Alexander Borisov & Germana Giombini & Alberto Zazzaro, 2015. "Collateral and Local Lending: Testing the Lender-Based Theory," IAW Discussion Papers 119, Institut für Angewandte Wirtschaftsforschung (IAW).
    12. Giorgio Calcagnini & Rebel Cole & Germana Giombini & Gloria Grandicelli, 2018. "Hierarchy of bank loan approval and loan performance," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 935-954, December.
    13. Lee, Chien-Chiang & Wang, Chih-Wei & Ho, Shan-Ju, 2020. "Financial inclusion, financial innovation, and firms’ sales growth," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 189-205.
    14. TSURUTA Daisuke, 2023. "Credit Allocation and Public Credit Guarantee Schemes for Small Businesses: Evidence from Japan," Discussion papers 23083, Research Institute of Economy, Trade and Industry (RIETI).
    15. Yu-Lin Wang & Chien-Hui Lee & Po-Sheng Ko, 2020. "Do Loan Guarantees Alleviate Credit Rationing and Improve Economic Welfare?," Sustainability, MDPI, vol. 12(9), pages 1-16, May.
    16. Giorgio Calcagnini & Rebel Cole & Germana Giombini & Giuseppe Travaglini, 2019. "Bank Loan Deterioration: Is It All Fault of the Crisis?," Working Papers 1907, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    17. Vittoria Cerasi & Alessandro Fedele & Raffaele Miniaci, 2017. "Product market competition and access to credit," Small Business Economics, Springer, vol. 49(2), pages 295-318, August.
    18. Andrea Bellucci & Ilario Favaretto & Germana Giombini, 2014. "Does Innovation Affect Credit Access? New Empirical Evidence from Italian Small Business Lending," IAW Discussion Papers 104, Institut für Angewandte Wirtschaftsforschung (IAW).
    19. Ratnawati Kusuma & Prabandari Sri Palupi & Kurniasari Irma, 2022. "The impact of financial inclusion on national development and national financial system stability," HOLISTICA – Journal of Business and Public Administration, Sciendo, vol. 13(2), pages 63-82, December.

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