Abstract
This paper presents an option-based model of construction loan pricing which we test with data for construction loans secured by three distinct property types. The empirical results are generally consistent with the theory for loans on one- to four-family and nonresidential properties. We find evidence that market concentration and demand for construction loans affect pricing for one- to four-family and nonresidential construction loans, consistent with the view that the construction loan market is local in scope. We also find evidence that loan participations and larger bank size are associated with lower interest rates.
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