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<p>In this paper, we investigate how similar risk attitudes among banks and borrowers influence lending relationships. Our findings show that greater alignment in risk attitudes significantly increases the likelihood of loan initiation and reduces the borrowing firms’ financing costs. In addition, we use a two-stage least squares with an instrumental variable, borrower-lender pair fixed effect, a change regression, and propensity score matching to address endogeneity and self-selection concerns. We also find that similar risk attitudes are associated with larger loan amounts, fewer financial covenants, and fewer collateral requirements. These insights enhance our understanding of bank-firm matching mechanisms, the influence of risk attitude on policy decisions, and the key determinants of loan contracting.</p>

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Risk attitude homophily and bank loan contracting

  • 期刊论文

  • 发表日期：

    2025年9月26日

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  • Po-Hsin Ho,
  • Chia-Wei Huang,
  • Chih-Yung Lin,
  • Ju-Fang Yen

摘要

In this paper, we investigate how similar risk attitudes among banks and borrowers influence lending relationships. Our findings show that greater alignment in risk attitudes significantly increases the likelihood of loan initiation and reduces the borrowing firms’ financing costs. In addition, we use a two-stage least squares with an instrumental variable, borrower-lender pair fixed effect, a change regression, and propensity score matching to address endogeneity and self-selection concerns. We also find that similar risk attitudes are associated with larger loan amounts, fewer financial covenants, and fewer collateral requirements. These insights enhance our understanding of bank-firm matching mechanisms, the influence of risk attitude on policy decisions, and the key determinants of loan contracting.