Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature-that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the empirical importance of this theory. Terms of use: Documents inJEL classification: G21, D82, G32, G38

Bank Competition and Collateral: Theory and Evidence

“…As a consequence, our estimations clearly support our theoretical prediction on the impact of bank competition on the use of collateral. This result is in sharp contrast with the negative link between bank concentration and collateral use observed by Jimenez, Salas and Saurina (2006) or the absence of link between both variables obtained by Berger et al (2007). However, these studies focus on one single country and use concentration indices to measure bank competition, which limit their relevance for the investigation of the role of bank competition on the presence of collateral.…”

“…As the dependent variable, the presence of collateral, is a binary variable, we perform logit regressions following Jimenez, Salas and Saurina (2006) and Berger et al (2007). 7 We estimate four logit regressions of the use of collateral by testing different combinations of control variables.…”

“…They notably analyze the impact of bank concentration, measured by the Herfindahl index, and find a negative impact of bank concentration on collateral use. Berger et al (2007) test whether the adoption of a lending technology reducing ex ante information asymmetries, ie small business credit scoring, is associated with lower collateral use in loan contracts in the US. Bank concentration measured by the Herfindahl index is included as a control variable.…”

Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

“…Collateral is a binary dependent variable, which indicates its presence in a loan contract. Considering the nature of our dependent variable, we employed logit regressions for our analysis following Hainz et al (2013), Jimenez et al (2006) and Berger et al (2011). Our full empirical model is as follows:…”

“…Collateral requirements on loan contracts and the observed risk hypothesis have also received utmost attention from researchers. However, these studies are concentrated on a single country and dominated by the US market (Leeth, Scott 1989;Berger, Udell 1990Brick, Palia 2007;Han et al 2009;Berger et al 2011), with a handful concentrated on the European market (Cowling 1999 -UK;Jimenez, Saurina 2004 -Spain;HernandezCanovas, Martinez-Solano 2006 -Spain;Duarte et al 2016 -Portugal). There are studies based on cross-country analyses but they cover both developing and developed markets (Godlewski, Weill 2011;Duarte et al 2017).…”