The role of long-term contracting in business lending / by Phoebe Tian.: FB3-5/2024-2E-PDF
"This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. I develop and estimate a dynamic model where firms repeatedly interact with the same lender. All loans are short-term. Collateral can be used to deter a strategic default by a firm, but the lender cannot recover the full value of the collateral in the case of a default. The endogenous contract terms—including interest rates, loan size and collateral—reflect a firm’s probability of default in equilibrium. Learning drives the dynamics of contract terms because a firm’s profitability type is unknown. Long-term contracts improve welfare mainly by mitigating the incentives for a firm to default"--Abstract, page ii.
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| Department/Agency | Bank of Canada, issuing body. |
|---|---|
| Title | The role of long-term contracting in business lending / by Phoebe Tian. |
| Series title | Staff working paper = Document de travail du personnel, 1701-9397 ; 2024-2 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | ISSN assigned to different series. "Last updated: February 2, 2024." Includes bibliographical references (pages 52-55). Includes abstracts in English and French. |
| Publishing information | [Ottawa] : Bank of Canada = Banque du Canada, 2024. ©2024 |
| Author / Contributor | Tian, Phoebe, author. |
| Description | 1 online resource (ii, 68 pages) : graphs. |
| Catalogue number |
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| Subject terms | Commercial loans -- China. Financial institutions -- China. Prêts commerciaux -- Chine. Institutions financières -- Chine. |
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