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Impacts of Chapter 12 and Lender Liability Suits on Bankers' Propensity to Lend in Western Arkansas

  • Bruce L. Dixon (a1), Kristin M. Raub (a1) (a2) and Janet A. Flaccus (a2)

Abstract

The recent availability of Chapter 12 bankruptcy and the more frequent use of lender liability suits by borrowers are factors that may be adversely affecting the supply of agricultural loans. An experiment using hypothetical loan applications was undertaken involving 34 banks in western Arkansas. Responses were used to estimate the impacts of these legal procedures on banks' lending behavior. The estimated models indicate Chapter 12 is not a significant factor in the loan approval process. Lender liability has marginal significance in lowering the probability of granting an intermediate term loan.

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