The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Does Corporate Lending by Banks and Finance Companies Differ? Evidence on Specialization in Private Debt Contracting
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00037
Mark Carey, Mitch Post, Steven A. Sharpe
This paper establishes empirically the existence of specialization in private‐market corporate lending, adding a new dimension to the public versus private debt distinctions now common in the literature. Comparing corporate loans made by banks and by finance companies, we find that the two types of intermediaries are equally likely to finance information‐problematic firms. However, finance companies tend to serve observably riskier borrowers, particularly more leveraged borrowers. Evidence supports both regulatory and reputation‐based explanations for this specialization. In passing, we shed light on various theories of debt contracting and intermediation and present facts about finance companies.