IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp2182.html
   My bibliography  Save this paper

Screening and Monitoring Corporate Loans

Author

Listed:
  • Sebastian Gryglewicz

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE))

  • Simon Mayer

    (University of Chicago - Booth School of Business)

  • Erwan Morellec

    (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute)

Abstract

We study a dynamic moral hazard problem in which a bank originates a pool of loans that it sells to competitive investors via securitization. The bank controls the default risk of the loans by screening at origination and monitoring after origination, but it is subject to moral hazard. The optimal contract between the bank and investors can be implemented via a time-decreasing stake within the loan pool, so the bank's monitoring incentives decrease and default risk increases over time. We find that screening and monitoring have positive incentive synergies and are complements. Credit ratings distort incentives, potentially increasing credit risk, and are particularly beneficial for high quality and short-maturity loans.

Suggested Citation

  • Sebastian Gryglewicz & Simon Mayer & Erwan Morellec, 2021. "Screening and Monitoring Corporate Loans," Swiss Finance Institute Research Paper Series 21-82, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2182
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3938511
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Corporate Bonds; Securitization; CLOs; Debt Maturity; Banking; Dynamic Contracting;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:chf:rpseri:rp2182. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    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.