Access to Collateral and the Democratization of Credit: France's Reform of the Napoleonic Code

48 Pages Posted: 11 Feb 2016 Last revised: 18 Mar 2016

See all articles by Kevin Aretz

Kevin Aretz

Alliance Manchester Business School

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 17, 2016

Abstract

We exploit the political economy of a contracting framework to show how access to collateral shapes the composition of corporate borrowing and the demographics of credit access. France's Ordonnance 2006-346 repudiated the 200-year old Napoleonic security code, easing the pledge of hard assets in a country where corporate credit was highly concentrated. The reform was undermined by non-codified laws pushed by firms in large cities, which allowed them to pledge liquid assets to factoring companies. Using a differences-test strategy, we show that firms with high utilization of hard assets and limited access to factoring services increased their leverage ratios the most following the reform ("intensive margin"), with the fraction of "zero-leverage firms" among them dropping from 89% to 29% ("extensive margin"). Using contract-level data, we show that access to hard assets allowed for significant reductions in loan mark-ups and increases in loan maturities. Small, profitable, low-risk firms benefitted the most from derogating the Napoleonic code. Start-up firms registered unprecedented increases in the use of debt financing at incorporation. Department-level analysis allows us to map the effects of Ordonnance 2006-346 on credit access inequality within and across different areas of the country. The reform reached firms in rural areas, leading to a pronounced decline in the Gini index of credit concentration across France's countryside.

Keywords: Security Laws, Contractibility, Collateral, Capital Structure, Bank Loans, Welfare

JEL Classification: G32, K22, O16

Suggested Citation

Aretz, Kevin and Campello, Murillo and Marchica, Maria‐Teresa, Access to Collateral and the Democratization of Credit: France's Reform of the Napoleonic Code (March 17, 2016). Available at SSRN: https://ssrn.com/abstract=2731043 or http://dx.doi.org/10.2139/ssrn.2731043

Kevin Aretz (Contact Author)

Alliance Manchester Business School ( email )

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Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

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Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School ( email )

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Manchester, M15 6PB
United Kingdom

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