NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Collateral Laws Shape Lending and Sectoral Activity

Charles W. Calomiris, Mauricio Larrain, José M. Liberti, Jason D. Sturgess

NBER Working Paper No. 21911
Issued in January 2016
NBER Program(s):CF

We demonstrate the central importance of creditors’ ability to use “movable” assets as collateral (as distinct from “immovable” real estate) when borrowing from banks. Using a unique cross-country micro-level loan dataset containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased towards the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production. An analysis of Slovakia’s collateral law reform confirms our findings.

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Document Object Identifier (DOI): 10.3386/w21911

Published: Calomiris, Charles W. & Larrain, Mauricio & Liberti, José & Sturgess, Jason, 2017. "How collateral laws shape lending and sectoral activity," Journal of Financial Economics, Elsevier, vol. 123(1), pages 163-188. citation courtesy of

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