The optimal allocation of alternative collateral assets between different loans

Juha-Pekka Niinimäki

The North American Journal of Economics and Finance, 2015, vol. 34, issue C, 22-41

Abstract: This paper studies loan collateral and relationship banking. A firm has different loans (e.g. short-term and long-term loans) and alternative collateral assets. How does it allocate the collateral assets between the loans? It optimally secures a long-term loan with collateral that incurs high information costs initially and has a strong learning effect during the loan period (e.g. accounts receivables). A short-term loan is secured with collateral that requires low information investment and has a weak learning effect (e.g. government bonds). It is optimal to secure long-term loans with long-term collateral and short-term loans with short-term collateral. If the loan period is short, unsecured lending may be optimal.

Keywords: Banking; Financial contracting; Collateral; Relationship lending; Asset-based lending (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940815000558
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:34:y:2015:i:c:p:22-41

DOI: 10.1016/j.najef.2015.07.003

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().