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

Steven ONGENA; Walid SAFFAR; Yuan SUN; Lai WEI

doi:10.1016/j.jbankfin.2024.107331

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 Publications › Journal 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 language	English
Article number	107331
Journal	Journal of Banking and Finance
Volume	170
Early online date	8 Nov 2024
DOIs	https://doi.org/10.1016/j.jbankfin.2024.107331
Publication status	E-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

Access to Document

10.1016/j.jbankfin.2024.107331

https://linkinghub.elsevier.com/retrieve/pii/S0378426624002450

Cite this

@article{d1f682ff277240b484d29185fc268b38,

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

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.",

keywords = "Access to credit, Collateral laws, Cost of debt, Inclusive Finance",

author = "Steven ONGENA and Walid SAFFAR and Yuan SUN and Lai WEI",

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: {\textcopyright} 2024 Elsevier B.V.",

year = "2024",

month = nov,

day = "8",

doi = "10.1016/j.jbankfin.2024.107331",

language = "English",

volume = "170",

journal = "Journal of Banking and Finance",

issn = "0378-4266",

publisher = "Elsevier B.V.",

}

TY - JOUR

T1 - Movables as Collateral and Corporate Credit: Loan-Level Evidence from Legal Reforms across Europe

AU - ONGENA, Steven

AU - SAFFAR, Walid

AU - SUN, Yuan

AU - WEI, Lai

N1 - 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.

PY - 2024/11/8

Y1 - 2024/11/8

N2 - 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.

AB - 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.

KW - Access to credit

KW - Collateral laws

KW - Cost of debt

KW - Inclusive Finance

UR - http://www.scopus.com/inward/record.url?scp=85209550639&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2024.107331

DO - 10.1016/j.jbankfin.2024.107331

M3 - Journal Article (refereed)

SN - 0378-4266

VL - 170

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

M1 - 107331

ER -

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

Abstract

Bibliographical note

Funding

Keywords

Access to Document

Other files and links

Financial Technology, Stability, and Inclusion (金融科技、金融穩定和普惠金融) (LU Part)

Cite this

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

Abstract

Bibliographical note

Funding

Keywords

Access to Document

Other files and links

Projects

Financial Technology, Stability, and Inclusion (金融科技、金融穩定和普惠金融) (LU Part)

Cite this