How Collateral Laws Shape Lending and Sectoral Activity

60 Pages Posted: 25 Jan 2016 Last revised: 14 Apr 2016

See all articles by Charles W. Calomiris

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 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 dataset 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 towards 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. 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 (January 2016). NBER Working Paper No. w21911. Available at SSRN: https://ssrn.com/abstract=2721772

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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Mauricio Larrain

Columbia University ( email )

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Jose Maria Liberti

Northwestern University - Kellogg School of Management ( email )

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DePaul University ( email )

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Jason Sturgess

Queen Mary University of London ( email )

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