Bank loan terms and conditions: is there a macro effect?

Anagnostopoulou, S. C. and Drakos, K. (2016) Bank loan terms and conditions: is there a macro effect? Research in International Business and Finance, 37. pp. 269-282. ISSN 0275-5319 doi: 10.1016/j.ribaf.2015.11.012

Abstract/Summary

We examine whether macroeconomic factors contain significant information for bank loan contracting terms and conditions (T&Cs), over and above that of standard firm-specific or country-level institutional factors. Our estimation is based on a seemingly unrelated mixed-processes methodology that accommodates two salient data properties: (i) the fact that loan contract terms are determined jointly as a single lending contract, and (ii) the fact that the elements of loan T&Cs are generated by different distributional formats. Our findings indicate that cross-country variation accounts for a significant portion of observed variation in loan T&Cs. In addition, macroeconomic fundamentals significantly explain the “package” of loan T&Cs offered to corporate borrowers, with this effect being distinct from any influence that T&Cs receive from firm-specific factors, and also from country-specific institutional factors.