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Determinants of Default: Evidence from a Sector-level Panel of Irish SME Loans

The Economic and Social Review

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Title Determinants of Default: Evidence from a Sector-level Panel of Irish SME Loans
 
Creator Lawless, Martina
McCann, Fergal
 
Subject default; SMEs; loans
 
Description This paper uses unique SME loan-level data complete with quarterly loan ratings assigned by the lending institution over the period 2008-2010. This allows us to examine the evolution of loan performance throughout the period of economic and financial crisis. We document the shift in the distribution of loans across ratings as economic conditions deteriorated, but also show that this effect was heterogeneous across sectors. In panel data estimations, changes in employment across sectors are shown to be a leading indicator of loan performance, demonstrating the importance of the link between real economy demand and loan impairment. Levels of outstanding credit in a sector cannot explain current loan performance. However, in keeping with a growing literature on the dangers of post-boom debt overhang, we calculate a measure of excess credit using deviations from a long-run trend that is strongly associated with higher levels of current impairment. This provides new evidence on the effect of relaxed credit standards during a boom on crisis-era loan delinquency.
 
Publisher The Economic and Social Review
 
Contributor —
 
Date 2013-12-17
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.esr.ie/article/view/91
 
Source The Economic and Social Review; Vol 44, No 4, Winter (2013); 473–488
0012-9984
 
Language eng
 
Relation http://www.esr.ie/article/view/91/71
 
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