Economics, Econometrics and Finance
8 years ago

Loan sales protect lenders and borrowers, strengthen lending relationships, and increase access.

SSRN Electronic Journal
On Loan Sales, Loan Contracting, and Lending Relationships
Steven Drucker, Manju Puri

Paper Summary

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The article explores how loan contracts can help solve problems in loan sales and benefit borrowers. By analyzing loan data, the researchers found that sold loans have stricter rules, especially when there are trust issues. Borrowers with high debts benefit from loan sales by getting more access to loans. Surprisingly, lending relationships become stronger when loans are sold.