SPATIAL VARIATION IN CONSTRUCTION LOAN PRICING AT COMMERCIAL-BANKS

This paper presents an option-based model of construction loan pricing which we test with data for construction loans secured by three disti nct property types. The empirical results are generally consistent wit h the theory for loans on one- to four-family and nonresidential prope rties. We find evidence that market concentration and demand for const ruction loans affect pricing for one- to four-family and nonresidentia l construction loans, consistent with the view that the construction l oan market is local in scope. We also find evidence that loan particip ations and larger bank size are associated with lower interest rates. (C) 1995 Academic Press. Inc.