PhD defense: Credit Rationing: Theory and Evidence
On Friday 7 September 2012 Xunhua Su will hold a trial lecture on a prescribed topic, and defend his thesis for the PhD degree at NHH.
03.09.2012 - Ed.
In a perfect market, price equalizes supply and demand at equilibrium. As long as a buyer pays the market price, she can get as much of the good as she wants.
The credit market seems not to fit such a model. Some borrowers cannot get the loan they need by increasing the interest rate or the loan price. To get the loan, they have to accept constraints on non-price instruments, e.g. collateral. This phenomenon is called non-price credit rationing, a prevalent phenomenon in practice.
The thesis includes three papers. The first paper reexamines the Stiglitz and Weiss (1981) credit-rationing model, one of the most influential papers in the literature.
The second paper, in a unified framework, illustrates how credit rationing can occur due to various agency problems, including risk shifting, money diversion, costly state verification, hidden effort, etc.
The third paper provides a new explanation for credit rationing. It is argued that credit rationing is a way to maintain the borrower's flexibility to prepay freely.
Given that prepayments are penalty-free as widely observed in practice, good borrowers will refinance their loans, leaving only bad borrowers in the borrower pool. This "reclassification effect" over time makes it impossible for the lender to recoup her investment by changing only the interest rate, resulting in non-price credit rationing.
To mitigate prepayment risk, the lender resorts to non-price instruments, e.g. collateral or lump-sum fees. The paper predicts that more collateral and/or higher upfront fees are required for borrowers with higher risk and lower refinancing costs. Empirical evidence from a sample of 64,555 term loans to U.S. firms between 1987 and 2011 supports the model predictions.
Xunhua Su (b. 1974) is from Rizhao in China and has his education from the University of Science and Technology of China and BI Norwegian Business School. He has been a PhD student at NHH's Department of Finance and Management Science.
Prescribed topic for the trial lecture:
Credit Rationing: Impact of the Financial Crisis and Recent Developments in the Eurozone
Time of the trial lecture:
10:15 in Karl Borch's Auditorium, NHH
Title of the thesis:
Credit Rationing: Theory and Evidence
Time and place for the defense:
12:15 in Karl Borch's Auditorium, NHH
Supervising committee:
Professor, Karin Thorburn, NHH, principal supervisor
Professor, Trond Olsen, NHH
Professor, B. Espen Eckbo, Tuck School of Business at Dartmouth
Members of the evaluation committee:
Professor, Tommy Stamland, NHH, chairperson
Professor, Frøystein Gjesdal, NHH
Professor, Martin Holmén, University of Gothenburg
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