Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Allen N. Berger, Marco Espinosa-Vega (), W Frame and Nathan H. Miller

Journal of Financial Intermediation, 2011, vol. 20, issue 1, 55-70

Abstract: An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers have ex ante private information. There is no clear empirical evidence regarding the central implication of this literature - that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the economic importance of this theory.

Keywords: Collateral; Asymmetric; information; Banks; Small; business; Credit; scoring (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (98)

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Working Paper: Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:20:y:2011:i:1:p:55-70

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