Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment

Steven Ongena, Kasper Roszbach () and Geraldo Cerqueiro
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Geraldo Cerqueiro: Universidade Católica Portuguesa

No 235, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We study a change in the Swedish law that exogenously reduced the value of all outstanding company mortgages, i.e., a type of collateral that is comparable to the floating lien. We explore this natural experiment to identify how collateral determines borrower quality, loan terms, access to credit and bank monitoring of business term loans. Using a differences-in-differences approach, we find that following the change in the law and the loss in collateral value borrowers pay a higher interest rate on their loans, receive a worse quality assessment by their bank, and experience a substantial reduction in the supply of credit by their bank. The reduction in collateral value also precedes a decrease in bank monitoring intensity and frequency of both the collateral and the borrower, consistent with models in which the pledging of risky assets incentivizes banks to monitor.

Date: 2012
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment (2012)
Working Paper: Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment (2011)
Working Paper: Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment (2011)
Working Paper: Collateralization, Bank Loan Rates and Monitoring: Evidence from a Natural Experiment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:235

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