Credit Ratings, Collateral, and Loan Characteristics: Implications for Yield*

2003/07/01 by Kose John, Anthony W. Lynch, Anthony W. Lynch +1 · 228 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Business #Collateral #Corporate Finance and Governance #Credit Risk and Financial Regulations #Economics #Finance #Loan #Materials science #Yield (engineering)

paper · doi:10.1086/375252

published in The Journal of Business 76(3), 371-409 (University of Chicago Press)

openalex publication_date 2003/07/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23

Abstract

This article studies how collateral affects bond yields. Using a large data set of public bonds, we document that collateralized debt has higher yield than general debt, after controlling for credit rating. Our model of agency problems between managers and claim holders explains this puzzling result by recognizing imperfections in the rating process. We test the model's implications. Consistent with our model and in results new to the literature, we find the yield differential between secured and unsecured debt, after controlling for credit rating, is larger for low credit rating, nonmortgage assets, longer maturity, and with proxies for lower levels of monitoring.

Citations

• A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity

Cited by

• Bank size, lending technologies, and small business finance
• Collateralization, Bank Loan Rates, and Monitoring

Related

• Collateralization, Bank Loan Rates, and Monitoring
• Defining, Estimating and Using Credit Term Structures. Part 1: Consistent Valuation Measures
• Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans
• Defining, Estimating and Using Credit Term Structures. Part 2: Consistent Risk Measures
• CLO Performance