The Effects of Collateral on SME Performance in Japan

Arito Ono, 有人 小野, Koji Sakai, 功治 坂井, Iichiro Uesugi and 威一郎 植杉

No 401, PIE/CIS Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: This paper examines how collateral and personal guarantees affect firms' ex-post performance employing the propensity score matching estimation approach. Based on a unique firm-level panel data set of more than 500 small-and-medium-sized borrower firms in Japan, we find the following. (1) The increase in profitability and reduction in riskiness of borrowers that provide collateral to lenders are more sizeable than of borrowers that do not. (2) On the other hand, the lending attitude and monitoring frequency of borrowers' main bank do not change significantly at the time of collateral being pledged. (3) The increase in profitability of collateralized borrowers is driven by cost reductions rather than by sales growth. These findings are consistent with the hypothesis that by providing collateral, borrowers curb their own incentives for moral hazard in order to further enhance their creditworthiness.

Keywords: collateral; moral hazard; propensity score (search for similar items in EconPapers)
JEL-codes: D82 G21 G30 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2008-09
Note: This draft: September 2008; Initial draft: February 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/16256/pie_dp401.pdf

Related works:
Working Paper: The Effects of Collateral on SME Performance in Japan (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:piecis:401

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