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How Collateral Laws Shape Lending and Sectoral Activity

Charles Calomiris, Mauricio Larrain (), José Liberti and Jason Sturgess ()

No 20, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper investigates the effect of cross-country differences in collateral laws regarding movable assets on lending and sectoral allocation of resources. Using micro-level loan data for a sample of emerging market countries we show that loan-to-values of loans collateralized with movable assets are on average 21 percentage points higher in countries with strong-collateral laws relative to immovable assets. Further, stronger collateral laws tilt collateral composition away from immovable to movable assets. We also provide evidence of a collateral class, including bank guarantees, for which enforcement is independent of collateral law. To examine the effect of collateral laws on real activity we map the relationship of collateral laws and collateral composition to asset-composition and sectoral resource allocation using industry-level output and employment data. Weak collateralization laws that discourage the use of movables assets as collateral create distortions in the allocation of resources that favor immovable-based production. The results shed light on an important channel – collateral laws – through which legal institutions affect lending and real economic activity.

Date: 2015-06
New Economics Papers: this item is included in nep-ban and nep-law
Note: Preliminary Draft
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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27317/wp020.pdf

Related works:
Journal Article: How collateral laws shape lending and sectoral activity (2017) Downloads
Working Paper: How Collateral Laws Shape Lending and Sectoral Activity (2016) Downloads
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