The Supply-Side Determinants of Loan Contract Strictness

@inproceedings{Murfin2011TheSD,
  title={The Supply-Side Determinants of Loan Contract Strictness},
  author={Justin Murfin},
  year={2011}
}
  • Justin Murfin
  • Published 2011
Using a novel measure of contract strictness based on the ex-ante probability of a covenant violation, I investigate how lender-specific shocks impact the strictness of the loan contract that a borrower receives. Exploiting between-bank variation in recent portfolio performance, I find evidence that banks write tighter contracts than their peers after suffering payment defaults to their own loan portfolios, even when defaulting borrowers are in different industries and geographic regions than… CONTINUE READING
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