How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans
JUN QIAN and PHILIP E. STRAHAN∗
THE JOURNAL OF FINANCE • VOL. LXII, NO. 6 • DECEMBER 2007

ABSTRACT
Legal and institutional differences shape the ownership and terms of bank loans
across the world. We show that under strong creditor protection, loans have more
concentrated ownership, longer maturities, and lower interest rates. Moreover, the
impact of creditor rights on loans depends on borrower characteristics such as the
size and tangibility of assets. Foreign banks appear especially sensitive to the legal
and institutional environment, with their ownership declining relative to domestic
banks as creditor protection falls. Our multidimensional empirical model paints a
more complete picture of how financial contracts respond to the legal and institutional
environment than existing studies。