Banks advance loans in the absence of precise knowledge in relation to the outcome of borrowers’ projects. Consequently, uncertainty in relation to loan repayment emerges. Thus, banks introduce the ‘credit standard’ as insurance against loans, so that should borrowers’ projects fail, borrowers have an alternative means of honouring their debt obligations. It is argued in this paper that in the ...

We investigate how borrowers’ corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level co...

In 2005, Prosper launched the first peer-to-peer lending website in US, allowing for consumers to apply and receive loans entirely online. To understand effect of this new credit source, we match application-level data from bureau data. Post application, borrowers’ scores increase their card utilization rates fall relative non-borrowers short run. longer run, total debt levels borrowers are hig...

We study a transitional economy where state-controlled banks make loan decisions based on noisy inside information on prospective borrowers, and may lend to avert unemployment and social instability. In China, poor financial performance and high managerial expenses increase the likelihood of obtaining a bank loan, and bank loan approval predicts poor subsequent borrower performance. Negative ev...

A common feature of financial intermediaries is that the welfare of one borrower is adversely affected by the poor performance of other borrowers. That is, there exists a degree of joint liability among the borrowers of a financial intermediary. This paper provides an explanation for this observation. It demonstrates that in Krasa and Villamil’s [14] formalization of a financial intermediary as...

This paper explores the significance of unobservable default risk in mortgage and automobile loan markets. I develop and estimate a two-period model that allows for heterogeneous forms of simultaneous adverse selection and moral hazard. Controlling for income levels, loan size and risk aversion, I find robust evidence of adverse selection, with borrowers self-selecting into contracts with varyi...

I examine whether easily observable variables such as beauty, race, and the way a loan applicant presents himself affect lenders’ decisions, once hard financial information about credit scores, employment history, homeownership, and other financial information are taken into account. I use data from Prosper.com, a 150 million dollars online lending market in which borrowers post loan requests t...

This paper provides a comprehensive examination of differences between relationship bank behavior for a set of borrowers that either underwent distress or filed for bankruptcy relative to normal times. Prior to distress, banks offer preferential contract terms in the form of lower interest rates and less collateral requirement to their relationship borrowers. After the onset of distress, banks ...

The online peer-to-peer (P2P) lending market, in which it is the practice of making unsecured microloans to other individual borrowers, is becoming more and more popular worldwide. In this market, information asymmetry between lenders and borrowers may create the adverse selection problem -the lenders may fund sub-prime borrowers with high risk of defaulting. In this study, we propose a model t...

Masquerading as legitimate help are companies that target forty-four million borrowers owing over $1.6 trillion in student loan debt. “Relief” purport to borrowers struggling repay loans but, fact, inflict irreversible financial harm by charging borrowers unlawful fees. Often pretending be affiliated with the U.S. Department of Education (Education Department), relief falsely claim they can...