Collateral damaged? Priority structure, credit supply, and firm performance
Steven Ongena () and
Journal of Financial Intermediation, 2020, vol. 44, issue C
A unique legal reform in 2004 in Sweden redistributed collateral rights from banks holding floating liens to unsecured creditors without changing the value of assets on firms’ balance sheets. Using a country-wide panel of all incorporated firms, we document that a zero-sum redistribution of collateral rights and the resulting reduction in collateral capacity towards banks contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations.
Keywords: Collateral; Investment; Financial constraints; Difference-in-differences; Floating lien; Seniority (search for similar items in EconPapers)
JEL-codes: D22 G31 G32 (search for similar items in EconPapers)
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Working Paper: Collateral damaged? Priority structure, credit supply, and firm performance (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:44:y:2020:i:c:s1042957319300324
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