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The Incidence of Secured Debt: Evidence from the Small Business Community

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Author Info
Leeth, John D.
Scott, Jonathan A.
Abstract

Critics claim that theories of secured debt fail to explain the widespread use of collateral because they incorrectly predict when a loan will be secured. This paper provides the first rigorous statistical test of the transaction cost models of secured debt. Data from two samples of over 1,000 small business loans generally support the common set of predictions of these theories. The incidence of secured debt is positively related to probability of default, loan size, loan maturity, and marketability of assets. Changes in the legal and economic environment also alter firms' decisions regarding the pledging of collateral.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 24 (1989)
Issue (Month): 03 (September)
Pages: 379-394
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:24:y:1989:i:03:p:379-394_01

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  1. Inderst, Roman & Mueller, Holger M, 2006. "A Lender-Based Theory of Collateral," CEPR Discussion Papers 5695, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2007. "Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information," Working Paper 2006-29, Federal Reserve Bank of Atlanta. [Downloadable!]
  3. George Haynes & Joseph Onochie & Glenn Muske, 2007. "Is What’s Good for the Business, Good for the Family: A Financial Assessment," Journal of Family and Economic Issues, Springer, vol. 28(3), pages 395-409, September. [Downloadable!] (restricted)
  4. Joseph Atta-Mensah, 2003. "Collateral and Credit Supply," Working Papers 03-11, Bank of Canada. [Downloadable!]
  5. A. Affuso, 2007. "Credit rationing and real assets: evidence from Italian panel data," Economics Department Working Papers 2007-EP09, Department of Economics, Parma University (Italy). [Downloadable!]
  6. Clas Bergström & Theodore Eisenberg & Stefan Sundgren, 2004. "On the Design of Efficient Priority Rules for Secured Creditors: Empirical Evidence from A Change in Law," European Journal of Law and Economics, Springer, vol. 18(3), pages 273-297, December. [Downloadable!] (restricted)
  7. Heather M. Hulburt & Frederick C. Scherr, 2003. "Determinants of the collateralization of credit by small firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 483-501. [Downloadable!]
  8. Cowling, Marc, 2007. "The Role of Loan Guarantee Schemes in Alleviating Credit Rationing in the UK," MPRA Paper 1613, University Library of Munich, Germany. [Downloadable!]
  9. Jana Bruder & Doris Neuberger & Solvig Raethke-Doeppner, 2007. "Financial Constraints of Ethnic Entrepreneurship: Evidence from Germany," Thuenen-Series of Applied Economic Theory 84, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  10. Jesús Saurina & Carlos Trucharte, 2004. "The Impact of Basel II on Lending to Small- and Medium-Sized Firms: A Regulatory Policy Assessment Based on Spanish Credit Register Data," Journal of Financial Services Research, Springer, vol. 26(2), pages 121-144, October. [Downloadable!] (restricted)
  11. Shao-Chi Chang & Sheng-Syan Chen & Ailing Hsing & Chia Huang, 2007. "Investment opportunities, free cash flow, and stock valuation effects of secured debt offerings," Review of Quantitative Finance and Accounting, Springer, vol. 28(2), pages 123-145, February. [Downloadable!] (restricted)
  12. Régis Blazy & Laurent Weill, 2006. "Why Do Banks Ask for Collateral and Which Ones ?," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2006-03, Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France). [Downloadable!]
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  13. Doris Neuberger, 1991. "Risk taking by banks and captial accumulation: A portfolio approach," Journal of Economics, Springer, vol. 54(3), pages 283-303, October. [Downloadable!] (restricted)
  14. Evaldo Guimarães Barbosa & Cristiana De Castro Moraes, 2003. "Determinants Of The Firm’S Capital Structure - The Case Of The Very Small Enterprises," Finance 0302001, EconWPA, revised 14 Feb 2003. [Downloadable!]
  15. Hernán Ortiz-Molina & María Penas, 2008. "Lending to small businesses: the role of loan maturity in addressing information problems," Small Business Economics, Springer, vol. 30(4), pages 361-383, April. [Downloadable!] (restricted)
  16. Stefan Sundgren, 1998. "Auditor choices and auditor reporting practices: evidence from Finnish small firms," European Accounting Review, Taylor and Francis Journals, vol. 7(3), pages 441-465, September. [Downloadable!] (restricted)
  17. David de Meza, 2002. "Overlending?," Economic Journal, Royal Economic Society, vol. 112(477), pages F17-F31, February. [Downloadable!] (restricted)
  18. Lukas Menkhoff & Doris Neuberger & Chodechai Suwanaporn, 2005. "Collateral-Based Lending in Emerging Markets: Evidence from Thailand," Finance 0501008, EconWPA. [Downloadable!]
    Other versions:
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