The Collateral Channel: Evidence on Leverage and Asset Tangibility

40 Pages Posted: 2 May 2011 Last revised: 28 Jan 2013

See all articles by Thomas W. Hall

Thomas W. Hall

Christopher Newport University

Date Written: November 13, 2011


Abstract: We examine how asset structure is related to leverage in different institutional environments, using tens of thousands of firm-level observations from small, privately held, emerging market firms that are likely to face financing constraints. Our empirical analysis indicates that the linkage between asset tangibility (fixed assets as a portion of total assets) and leverage (measured as long-term debt over total assets) varies, such that in countries with fewer restrictions on collateral (land transferability), the relationship between these variables is much tighter. This also applies to the linkage between tangibility and debt maturity structure (measured as long-term debt over total debt). We find no evidence that industry concentration in different countries or changing composition of firms over time is driving our findings. The results are robust to using firm-level fixed effects specifications, to clustering error terms at the country level, and to using an alternative proxy for collateral law regime.

Keywords: Collateral, Leverage, Debt Maturity, Emerging Markets, Asset Tangibility

JEL Classification: G21, G30, K20

Suggested Citation

Hall, Thomas William, The Collateral Channel: Evidence on Leverage and Asset Tangibility (November 13, 2011). Journal of Corporate Finance, Volume 18, Issue 3, Pages 570-583. , Available at SSRN:

Thomas William Hall (Contact Author)

Christopher Newport University ( email )

United States

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