Collateral and Adverse Selection in Transition Countries
University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)
Christophe J. Godlewski
LaRGE Research Center (University of Strasbourg); EM Strasbourg Business School; FSESJ - Université de Haute Alsace
This paper tackles the question of knowing whether collateral helps solve adverse selection problems in transition countries. We use a unique dataset of about 400 bank loans from 16 transition countries. Our findings support the view of a positive link between the presence of collateral and the risk premium, which is in accordance with the observed-risk hypothesis. This suggests that collateral does not mitigate adverse selection problems in transition countries.
Number of Pages in PDF File: 31
Keywords: Bank, collateral, transition economies
JEL Classification: G21, P20working papers series
Date posted: April 29, 2008
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