Enhancing the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Mauricio Larrain

Columbia University

June 23, 2014

Columbia Business School Research Paper No. 13-86

A recent wave of reforms across Eastern European countries gave more flexibility and information for parties to engage in secured debt transactions, also reducing court involvement. Critically, the menu of assets accepted as pledges in secured transactions was increased to include "movable assets" (e.g., machinery and equipment). Contrasting firms operating in industries with differential use of movable and immovable assets, difference-in differences tests show that firms operating more movable assets borrowed more, invested more, hired more, and became more efficient and profitable following those changes in contracting. The reforms also democratized access to credit, with more firms (particularly small ones) abandoning their zero-leverage status. Notably, results are modulated by the level of efficiency of local courts, with larger credit expansion taking place in jurisdictions where courts were previously less efficient. The financial deepening we document triggered important capital and employment reallocation effects: Firms whose assets are most sensitive to the reform observe a sharp increase in their share of capital stock and employment in the economy.

Number of Pages in PDF File: 46

Keywords: Contractibility, collateral, capital structure, credit availability, real activity

JEL Classification: G32, K22, O16

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Date posted: November 22, 2013 ; Last revised: June 24, 2014

Suggested Citation

Campello, Murillo and Larrain, Mauricio, Enhancing the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity (June 23, 2014). Columbia Business School Research Paper No. 13-86. Available at SSRN: http://ssrn.com/abstract=2358183

Contact Information

Murillo Campello
Cornell University ( email )
114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States
HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
Mauricio Larrain (Contact Author)
Columbia University ( email )
3022 Broadway
New York, NY 10027
United States
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