Loan Commitment Contracts, Terms of Lending, and Credit Allocation

Authors

  • ARIE MELNIK,

  • STEVEN PLAUT

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    • Department of Economics, University of Haifa and Faculty of Management, Technion-IIT, respectively. We wish to thank R. N. Vaughn, R. Waggoner, and J. Whittle for their assistance during the data collection phase of this study. We are indebted to Dwight M. Jaffee and Paul Wachtel for helpful comments on an earlier draft. Thanks are due also to the anonymous reviewers for thoughtful comments which improved the paper considerably. Financial support from the Zimmerman Foundation for Research in Banking and Finance is gratefully acknowledged.

ABSTRACT

This paper analyzes the structure of loan commitment contracts and the interrelationships among their component parameters. Lenders offer borrowers a set of loan “packages,” from which the latter may choose that “package” found to be most appealing. Borrowers may “trade off” changes in any loan parameter in exchange for other adjustments. The borrower, at this time, may “purchase” a larger credit ration for a price. Supporting empirical evidence is presented.

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