Collateral Damage? On Collateral, Corporate Financing and Performance

55 Pages Posted: 19 Jun 2016

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: June 17, 2016

Abstract

In this paper, we investigate the economy-wide effects of the collateral channel by exploiting: (i) a legal reform in Sweden in 2004 that reduced collateral values, and (ii) a dataset that covers all incorporated firms in Sweden over the period 2000-2006. We find that the loss in collateral value reduces both the amount and the maturity of firm debt and leads firms to contract investment, employment, and assets. The legal reform may distort investment and asset allocation decisions, as firms that reduce their holdings of assets with low collaterizable value and firms that hold more liquid assets consequently become less productive and innovative. Our results therefore document the potency of a collateral channel outside of a crisis.

Keywords: collateral, investment, financial constraints, differences-in-differences, floating lien

JEL Classification: D22, G31, G32

Suggested Citation

Cerqueiro, Geraldo and Ongena, Steven R. G. and Roszbach, Kasper F., Collateral Damage? On Collateral, Corporate Financing and Performance (June 17, 2016). ECB Working Paper No. 1918, Available at SSRN: https://ssrn.com/abstract=2797358

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/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
109
Abstract Views
765
rank
102,662
PlumX Metrics