Movable assets as collateral in debt financing and effects on trade credit: Evidence from collateral law reforms

Xiao Li, Jeffrey Ng and Walid Saffar

Journal of Financial Stability, 2025, vol. 78, issue C

Abstract: Using the staggered adoption of collateral law reforms across Europe, we examine their effects on trade credit financing. We find that firms in countries that adopt such reforms receive less trade credit, consistent with suppliers viewing these firms as less creditworthy. Moreover, this decrease in trade credit is more pronounced for firms and industries with more movable assets, for financially constrained firms, and for firms in countries with strong legal enforcement, indicating that collateralization of movable assets drives this relation. Our findings suggest that the use of movable assets as collateral in bank borrowing increases supplier risks and decreases demand for trade credit, thus discouraging its use.

Keywords: Trade credit; Collateral laws; Access to credit (search for similar items in EconPapers)
JEL-codes: G21 G30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:78:y:2025:i:c:s157230892500035x

DOI: 10.1016/j.jfs.2025.101406

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