Households rejecting loan offers from banks

Yiyi Bai, Liping Lu*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper studies the mechanism of adverse selection in the credit market using a sample of mortgage applications that are approved by lenders but rejected by applicants. We find that a low-risk applicant is more likely to reject a loan offer, except when the offer is made by an informed lender. Using jumbo mortgage and loan acceptance rate data to proxy for the information advantage, we find that lenders with a lower likelihood of being rejected are indeed better informed than others.

Original languageEnglish
Article number105339
Pages (from-to)1-15
Number of pages15
JournalJournal of Banking and Finance
Volume119
Early online date16 May 2018
DOIs
Publication statusPublished - Oct 2020

Funding

Bai is grateful to Steven Ongena and Neeltje Van Horen for their valuable advice and guidance. This paper has benefited from discussions with Lieven Baele, Fabio Braggion, Marco Da Rin, Cem Demiroglu, Peter De Goeij, Olivier De Jonghe, Joost Driessen, Qing He, Alberto Manconi, Maria Fabiana Penas, Luc Renneboog, Timothy Riddiough, Yuji Sakurai, Oliver Spalt, and Wolf Wagner, and seminar participants at Tilburg University, University of International Business and Economics, Renmin University of China, Chinese Academy of Finance and Development, Shanghai University of Finance and Economics, Huazhong University of Science and Technology, Nanjing University and Jilin University, and participants at the 5th FEBS conference 2015 in Nantes, the 7th IFABS conference in Hangzhou and 5th Auckland Finance Meeting in Auckland. Bai acknowledges the financial support from the corporate finance research team in School of Finance at Zhongnan University of Economics and Law, the Fundamental Research Funds for the Central Univerties (2017QN034), and National Natural Science Foundation of China (No. 71601186 and 71772178 ). Lu acknowledges the financial support from National Natural Science Foundation of China (No. 71603225 ), and National Social Science Foundation of China (No. 15ZDA027).

FundersFunder number
5th Auckland Finance Meeting
Chinese Academy of Finance and Development
National Social Science Foundation of China15ZDA027
Zhongnan University of Economics and Law
University of International Business and Economics
National Natural Science Foundation of China71601186, 71772178, 71603225
Huazhong University of Science and Technology
Jilin University
Renmin University of China
Universiteit van Tilburg
Shanghai University of Finance and Economics
Nanjing University
Fundamental Research Funds for the Central Universities2017QN034

    Keywords

    • Concentrated lender
    • Information advantage
    • Mortgage lending

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