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Lending to small businesses: the role of loan maturity in addressing information problems

Author

Listed:
  • Hernán Ortiz-Molina
  • María Penas
Abstract
We investigate what determines the maturity of loans to small, informationally opaque businesses.We find that longer maturities are associated with collateral pledges, better financial condition, good credit history, and less informational opacity of the borrower.However, we do not find a positive association between stronger firm-creditor relationships (which can attenuate these information asymmetries) and longer maturities.The evidence suggests that creditors use shorter maturities to induce more frequent renegotiation of contract terms, thus enforcing closer monitoring of more informationally opaque and risky borrowers.Overall, our results are consistent with shorter loan maturities mitigating the consequences of borrower-lender informational asymmetries.
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Suggested Citation

  • Hernán Ortiz-Molina & María Penas, 2008. "Lending to small businesses: the role of loan maturity in addressing information problems," Small Business Economics, Springer, vol. 30(4), pages 361-383, April.
    • Handle: RePEc:kap:sbusec:v:30:y:2008:i:4:p:361-383
    DOI: 10.1007/s11187-007-9053-2
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    More about this item

    Keywords

    Loan maturity; Collateral; Small businesses; Relationship lending; G21; G32; L26;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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