Determinants of Collateral

49 Pages Posted: 19 Jul 2004

See all articles by Jesus Saurina Salas

Jesus Saurina Salas

Banco de España

Vicente Salas-Fumás

University of Zaragoza - Department of Business Administration and Organization

Gabriel Jiménez

Banco de España

Date Written: February 2004


This paper draws upon the theory of contracting under asymmetric information to postulate and test several hypotheses concerning the relationship between the use and amount of collateral in financial loans to firms, the risk profile of the borrower, business cycle and monetary conditions of the economy, strength of the lending relation between borrower and lender, competition in the credit market and expertise and preferences of the lender. The research takes advantage of a very large panel of data coming from the Credit Register that contains the whole population of loans granted every year from 1984 to 2002 by Spanish banks to firms (approximately two million loans). Important novelties of the paper are that the quality of the borrower is measured in terms of ex ante and ex post credit risk, that the association between credit risk of the borrower and the use of collateral is evaluated in different segments of the credit market (short-term, and long-term loans, and new and old borrowers), which are likely to present differences in the relative information advantage of the borrower over the lender, and that we also control for borrowers' idiosyncratic effects. The evidence confirms that the use of collateral is determined in a predictable, different way in each market segment.

Keywords: collateral, asymmetric information, relationship banking, competition, business cycle

JEL Classification: G21

Suggested Citation

Saurina Salas, Jesus and Salas-Fumás, Vicente and Jimenez, Gabriel, Determinants of Collateral (February 2004). Available at SSRN: or

Jesus Saurina Salas

Banco de España ( email )

Madrid 28014

Vicente Salas-Fumás (Contact Author)

University of Zaragoza - Department of Business Administration and Organization ( email )

Dr. Cerrada 1
5005 Zaragoza
+34 976 761803 (Phone)

Gabriel Jimenez

Banco de España ( email )

Alcala 50
Madrid 28014

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