Collateral and Adverse Selection in Transition Countries
31 Pages Posted: 29 Apr 2008
Date Written: 2008
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.
Keywords: Bank, collateral, transition economies
JEL Classification: G21, P20
Suggested Citation: Suggested Citation