Access to Collateral and the Democratization of Credit: France's Reform of the Napoleonic Code
101 Pages Posted: 11 Feb 2016 Last revised: 25 May 2019
Date Written: May 20, 2019
France's Ordonnance 2006-346 repudiated the notion of possessory ownership in the Napoleonic Code, easing the pledge of physical assets in a country where credit was highly concentrated. Using a differences-test strategy, we show that firms operating newly-pledgeable assets significantly increased their borrowing following the reform. Small, young, and financially constrained businesses benefitted the most, observing improved credit access and real-side outcomes. Start-ups operating newly-pledgeable assets emerged with higher “at-inception” leverage, located farther from large cities, with more assets-in-place than before. Their exit and bankruptcy rates declined. Spatial analyses show that the reform reached firms in rural areas, reducing credit access inequality across France's countryside.
Keywords: Security Laws, Contractibility, Collateral, Capital Structure, Bank Loans, Welfare
JEL Classification: G32, K22, O16
Suggested Citation: Suggested Citation