The Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market

This draft: March 2008; First draft: August 2006
This paper investigates the determinants of the use of collateral and personal guarantees in, Japan's SME loan market. We find that firms' riskiness does not have a significant effect on the, likelihood that collateral is used. We find, however, that main banks whose claims are collateralized, monitor borrowers more intensively, and that borrowers who have a long-term relationship with, their main banks are more likely to pledge collateral. These findings are consistent with the theory, that the use of collateral is effective in raising the bank's seniority and enhances its screening and, monitoring. This incentive effect for the bank becomes tenuous for personal guarantees.
科学研究費補助金（特別推進研究） = Grant-in-Aid for Specially Promoted Research