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How Collateral Laws Shape Lending and Sectoral Activity

60 Pages Posted: 9 Nov 2014 Last revised: 17 Oct 2016

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Mauricio Larrain

Columbia University

Jose Maria Liberti

Northwestern University - Kellogg School of Management; DePaul University

Jason Sturgess

Queen Mary University of London

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Date Written: February 17, 2016

Abstract

We demonstrate the central importance of creditors’ ability to use movable assets as collateral (as distinct from immovable real estate) when borrowing from banks. Using a unique cross-country micro level loan data set containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased toward the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable based production and investment. An analysis of Slovakia’s collateral law reform confirms our findings.

Suggested Citation

Calomiris, Charles W. and Larrain, Mauricio and Liberti, Jose Maria and Sturgess, Jason, How Collateral Laws Shape Lending and Sectoral Activity (February 17, 2016). Forthcoming, Journal of Financial Economics. Available at SSRN: https://ssrn.com/abstract=2520871 or http://dx.doi.org/10.2139/ssrn.2520871

Charles Calomiris

Columbia University - Columbia Business School ( email )

3022 Broadway
601 Uris, Dept. of Finance & Economics
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212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

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Mauricio Larrain (Contact Author)

Columbia University ( email )

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New York, NY 10027
United States

Jose Liberti

Northwestern University - Kellogg School of Management ( email )

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Jacobs 4203
Evanston, IL 60208
United States
(847) 491-5861 (Phone)
(847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/liberti_jose.aspx

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
(312) 362-8739 (Phone)
(312) 362-6566 (Fax)

Jason Sturgess

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, E1 4NS
United Kingdom

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