Nominal and true cost of loan collateral

J.-P. Niinimäki

Journal of Banking & Finance, 2011, vol. 35, issue 10, 2782-2790

Abstract: This paper explores costs and proceeds from loan collateral in the credit market with ex-ante asymmetric information when collateral value and the probability of project success fluctuate. A borrower is willing to pledge collateral if (i) its future value is correlated with the probability of project success, or (ii) its value fluctuates strongly, or (iii) it is funded with loan capital. When one of the conditions is satisfied, in contrast to Bester (1985), a high-risk borrower may be more willing to pledge collateral than a low-risk borrower. The paper is related to topical subprime crises and real estate collateral.

Keywords: Banking; Collateral; Screening; Signalling; Subprime; crisis (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:10:p:2782-2790

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