Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity
44 Pages Posted: 2 Nov 2015 Last revised: 1 Dec 2015
Date Written: October 2015
Recent reforms across Eastern European countries gave more flexibility and information for 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 of such reforms. 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.
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