Moral hazard and default risk of SMEs with collateralized loans

José A. Castillo, Andrés Mora-Valencia and Javier Perote

Finance Research Letters, 2018, vol. 26, issue C, 95-99

Abstract: This paper examines the failure of small- and medium-sized enterprises (SMEs) by considering both traditional financial ratios and other ratios proposed to capture ‘moral hazard effects’ in the presence of collateral, which lie in the principal-agent relationship between lender and borrower under conditions of asymmetric information. With a new Colombian database and by estimating default probability logit models, we measure the impact of these moral hazard effects on credit risk. We find that low effort and underinvestment variables have a significant impact on default risk and thus moral hazard has an effect on the failure of SMEs with collateralized obligations.

Keywords: Default; Collateral; Moral hazard; Logit; SMEs (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:26:y:2018:i:c:p:95-99

DOI: 10.1016/j.frl.2017.12.010

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