How collateral laws shape lending and sectoral activity

Charles W. Calomiris, Mauricio Larrain, José Liberti and Jason Sturgess

Journal of Financial Economics, 2017, vol. 123, issue 1, 163-188

Abstract: We demonstrate the central importance of creditors’ ability to use movable assets as collateral (as distinct from immovable real estate) when borrowing from banks. Using a unique cross-country micro-level loan data set containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased toward the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production and investment. An analysis of Slovakia's collateral law reform confirms our findings.

Keywords: Movable collateral; Immovable collateral; Collateral laws; Creditor rights; Loan-to-value ratios (search for similar items in EconPapers)
JEL-codes: G21 G30 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (52)

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Related works:
Working Paper: How Collateral Laws Shape Lending and Sectoral Activity (2016)
Working Paper: How Collateral Laws Shape Lending and Sectoral Activity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:123:y:2017:i:1:p:163-188

DOI: 10.1016/j.jfineco.2016.09.005

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