The Use of Intangible Assets as Loan Collateral
64 Pages Posted: 27 Jan 2011 Last revised: 30 Jan 2013
Date Written: November 1, 2012
Using a sample of secured syndicated loans, I explore the use of intangible assets as loan collateral and whether this credit practice was an innovation or a negative mutation in the corporate loan market. While intangible assets were not traditionally considered as eligible collateral, I find that twenty-one percent of U.S.-originated secured syndicated loans during 1996-2005 have been collateralized by intangibles, with intangible asset collateralization significantly increasing over this time period. I hypothesize and find that intangible redeployability and borrower reputation are positively related to the probability of using intangibles as loan collateral. I further hypothesize and find that collateralizing loans by intangibles significantly increases loan pricing and credit supply to firms. Finally, loans secured by intangibles perform no worse than other secured loans. Overall, I find evidence consistent with the fact that intangible asset collateralization was a credit market innovation that partially alleviated financing frictions.
Keywords: Debt contracting, Positive accounting, Loan collteral, Intangible assets, Credit innovations
JEL Classification: M40, M41
Suggested Citation: Suggested Citation