Collateral damage? On collateral, corporate financing and performance

Steven Ongena, Geraldo Cerqueiro and Kasper Roszbach ()

No 1918, Working Paper Series from European Central Bank

Abstract: In this paper, we investigate the economy-wide effects of the collateral channel by exploiting: (i) a legal reform in Sweden in 2004 that reduced collateral values, and (ii) a dataset that covers all incorporated firms in Sweden over the period 2000-2006. We find that the loss in collateral value reduces both the amount and the maturity of firm debt and leads firms to contract investment, employment, and assets. The legal reform may distort investment and asset allocation decisions, as firms that reduce their holdings of assets with low collaterizable value and firms that hold more liquid assets consequently become less productive and innovative. Our results therefore document the potency of a collateral channel outside of a crisis. JEL Classification: D22, G31, G32

Keywords: collateral; differences-in-differences; financial constraints; floating lien; investment (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-bec, nep-eur and nep-ger
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161918

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