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

45 Pages Posted: 22 Nov 2013 Last revised: 16 Nov 2015

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Mauricio Larrain

Columbia University

Date Written: November 12, 2015

Abstract

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.

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

JEL Classification: G32, K22, O16

Suggested Citation

Campello, Murillo and Larrain, Mauricio, Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity (November 12, 2015). Forthcoming, Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=2358183

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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