Collateral Damaged? Priority Structure, Credit Supply, and Firm Performance

91 Pages Posted: 25 Nov 2015 Last revised: 26 Mar 2019

See all articles by Geraldo Cerqueiro

Geraldo Cerqueiro

Catolica-Lisbon SBE

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Kasper Roszbach

Norges Bank - Research Department; University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2019

Abstract

A unique legal reform in 2004 in Sweden redistributed liquidation proceeds from banks holding floating liens to unsecured creditors. Using a country-wide panel of all registered firms, we document that the resulting reduction in collateral capacity contracts the amount and maturity of corporate debt and leads firms to slow investment and forego growth. Altering their allocation of assets, firms reduce particularly those assets with a low collateralizable value for banks and also hoard more cash. However, the reform has no impact on corporate capital intensity or efficiency, suggesting that under these newly binding credit constraints firms simply shrink their operations.

Keywords: Collateral, investment, financial constraints, differences-in-differences, floating lien, seniority

JEL Classification: D22, G31, G32

Suggested Citation

Cerqueiro, Geraldo and Ongena, Steven R. G. and Roszbach, Kasper F., Collateral Damaged? Priority Structure, Credit Supply, and Firm Performance (March 21, 2019). Available at SSRN: https://ssrn.com/abstract=2694575 or http://dx.doi.org/10.2139/ssrn.2694575

Geraldo Cerqueiro (Contact Author)

Catolica-Lisbon SBE ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Kasper F. Roszbach

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

University of Groningen - Faculty of Economics and Business ( email )

Department of Economics, Econometrics and Finance
Nettelbosje 2
Groningen, NL 9747 AE
Netherlands

HOME PAGE: http://www.rug.nl/staff/k.f.roszbach/

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