56 Pages Posted: 18 Mar 2017 Last revised: 16 Jul 2017
Date Written: July 2017
We examine the effect of collateral on corporate borrowing capacity. While the average firm experienced a negative liquidity shock during the recent financial crisis, the concurrent increase in gold prices provides a positive shock to the collateral value of gold firms. Using this shock, we find that gold firms experience more credit availability via their bank lines of credit during the crisis period relative to non-gold firms. The effect is limited to firms who are less likely to engage in risk-shifting behavior, who do not hedge price risk, and whose credit lines are secured with the firm's assets. Our results do not appear to be driven by changing growth options. Finally, we also document similar results with net debt issuances.
Keywords: Lines of Credit, Corporate Collateral, Gold, Risk Management, Risk Shifting, Borrowing Capacity
JEL Classification: G30, G32, G21
Suggested Citation: Suggested Citation
Markou, Panos and Williams, Ryan and Yang, Jie, Collateral, Risk, and Borrowing Capacity (July 2017). Available at SSRN: https://ssrn.com/abstract=2934447