Movables as Collateral and Corporate Credit: Loan-Level Evidence from Legal Reforms across Europe

Steven ONGENA, Walid SAFFAR, Yuan SUN*, Lai WEI

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

Does pledging movables as collateral alter corporate borrowing? To answer this question, we study the effect of collateral law reforms on syndicated bank loans granted across nine European countries that facilitated pledging movables between 1995 and 2019, comparing them to 19 countries that did not. We differentiate firms in sectors of higher versus lower asset movability to strengthen the identification. We find that although the reforms have enabled firms in movable-intensive sectors to issue more secured loans, the average cost of the loans and the number of covenants have also increased. Channel tests suggest that banks may demand more to compensate for the potential wealth redistribution induced by newly issued secured credit, or the unique risk involved with using movables as collateral.

Original languageEnglish
Article number107331
JournalJournal of Banking and Finance
Volume170
Early online date8 Nov 2024
DOIs
Publication statusE-pub ahead of print - 8 Nov 2024

Bibliographical note

We gratefully acknowledge the helpful comments of two anonymous referees, Thorsten Beck (editor), Andy Chui, Liangliang Jiang, Longfei Shang, Chong Wang, John Wei, Jing Xie, Cheng Colin Zeng, and conference/seminar participants at the 2023 European Finance Association Annual Meeting, 2024 Asian Finance Association Annual Conference, The Hong Kong Polytechnic University, State University of Jakarta, and Lingnan University.

Publisher Copyright:
© 2024 Elsevier B.V.

Funding

Wei acknowledges financial support from the Research Grant Council of the Hong Kong Special Administrative Region, China - T35/710/20R.

Keywords

  • Access to credit
  • Collateral laws
  • Cost of debt
  • Inclusive Finance

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