Collateral damaged? Priority structure, credit supply, and firm performance

Geraldo Cerqueiro, Steven Ongena and Kasper Roszbach ()
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Geraldo Cerqueiro: Católica-Lisbon School of Business and Economics

No 2019/9, Working Paper from Norges Bank

Abstract: A unique legal reform in 2004 in Sweden redistributed collateral rights from banks holding floating liens to unsecured creditors without changing the value of assets on firms' balance sheets. Using a country-wide panel of all incorporated firms, we document that a zero-sum redistribution of collateral rights and the resulting reduction in collateral capacity towards banks contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations.

Keywords: Collateral; investment; financial constraints; difference-in-differences; floating lien; seniority (search for similar items in EconPapers)
JEL-codes: D22 G31 G32 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-05-29
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eff and nep-fdg
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https://www.norges-bank.no/en/news-events/news-pub ... g-Papers/2019/92019/

Related works:
Journal Article: Collateral damaged? Priority structure, credit supply, and firm performance (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2019_09

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