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File name: SSRN-id1117738. ; Size: 256K
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Collateral Spread and Financial Development
Jose Maria Liberti
DePaul University
Atif R. Mian
Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER
Abstract:
We show that institutions that promotional development ease borrowing constraints by lowering the collateral spread, and shifting the composition of acceptable collateral towards firm-specific assets. Using a novel cross-country loan-level data set, we estimate collateral spread as the difference in rates of collateralization between high and low risk borrowers in a given economy. The average collateral spread is large but declines rapidly with financial development. A one standard deviation improvement in financial development due to stronger institutions leads to a reduction in collateral spread by one-half. We also find that the composition of collateralizable assets shifts towards non-specific assets (e.g. land) with increased risk. However, this shift is considerably smaller in more developed financial markets, thus enabling risky borrowers to use a larger variety of assets as collateral.
Number of Pages in PDF File: 37
Keywords: collateral, financial development, banks, emerging markets
JEL Classification: G21, G33, K11, K12, O12
working papers series
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Date posted: April 8, 2008
; Last revised: April 3, 2009
Suggested CitationLiberti, Jose Maria and Mian, Atif R., Collateral Spread and Financial Development. Available at SSRN: http://ssrn.com/abstract=1117738 or http://dx.doi.org/10.2139/ssrn.1117738
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