Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity
Cornell University; National Bureau of Economic Research (NBER)
November 12, 2015
Forthcoming, Review of Financial Studies
Recent reforms across Eastern European countries have given more flexibility and information to parties to engage in secured debt transactions. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more as a result. Those firms also invested more, hired more, and became more efficient and profitable following the changes in the contracting environment. The financial deepening we document triggered important reallocation effects: firms affected by the reforms increased their share of fixed assets and employment in the economy.
Number of Pages in PDF File: 45
Keywords: Contractibility, collateral, capital structure, credit availability, real activity
JEL Classification: G32, K22, O16
Date posted: November 22, 2013 ; Last revised: November 16, 2015
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