Bank Interest Margins and Business Start‐up Collateral

Testing for Convexity

Datos Bibliográficos

ID9956907
AutoresAndrew Burke (0000-0001-8635-3859, Cranfield University, autor de correspondencia), Aoife Hanley (0000-0002-2810-961X, University of Nottingham)
Año2006
Volumen53
Número3
Páginas319-334
Fecha de publicación2006-07-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaScottish Journal of Political Economy (JOURNAL)
Identificadores de la revistaISSN: 0036-9292 • E-ISSN: 1467-9485
EditorialWiley (PUBLISHER • GB)
DOI10.1111/j.1467-9485.2006.00382.x
OpenAlexW2089666576
IdiomaEN
Citas recibidas2
Referencias citadas19

The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U‐shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point, the positive risk‐wealth association gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that a lender's pricing policy may even somewhat help to level the competitive playing field between ventures launched by higher and moderately wealthy entrepreneurs

Actuarial science · Business · Capital (architecture · Collateral · Convexity · Economics · Incentive · Interest rate · Microeconomics · Monetary economics · Moral hazard · Point (geometry · Banking stability, regulation, efficiency · Corporate Finance and Governance · Finance · Islamic Finance and Banking Studies