TY  - JOUR
AU  - Qian,Jun
AU  - Strahan,Philip E.
TI  - How Law and Institutions Shape Financial Contracts: The Case of Bank Loans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11052
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11052
L1  - http://www.nber.org/papers/w11052.pdf
N1  - Author contact info:
Jun Qian
Boston College
140 Commonwealth Ave
Chestnut Hill, MA 02467
E-Mail: qianju@bc.edu

Philip Strahan
Carroll School of Management
324B Fulton Hall
Boston College
Chestnut Hill, MA  02467
Tel: 617/552-6430
E-Mail: philip.strahan@bc.edu
AB  - We examine empirically how legal origin, creditor rights, property rights, legal formalism, and financial development affect the design of price and non-price terms of bank loans in almost 60 countries. Our results support the law and finance view that private contracts reflect differences in legal protection of creditors and the enforcement of contracts. Loans made to borrowers in countries where creditors can seize collateral in case of default are more likely to be secured, have longer maturity, and have lower interest rates. We also find evidence, however, that ?Coasian? bargaining can partially offset weak legal or institutional arrangements. For example, lenders mitigate risks associated with weak property rights and government corruption by securing loans with collateral and shortening maturity. Our results also suggest that the choice of loan ownership structure affects loan contract terms.
ER  -