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The effect of the Bankruptcy Reform Act of 1978 on small business loan pricing

Journal of Financial Economics 1986 16(1), 119-140
The Bankruptcy Reform Act of 1978 contains several provisions that can affect the cost of producing loans for financial intermediaries. In a competitive lending market the additional monitoring and expected foreclosure costs imposed by the change in the bankruptcy law should be passed on to the borrower. Using survey data from a sample of small business loans from commercial banks, evidence is presented that the enactment of the new law resulted in higher contract rates of interest.