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The collateral channel under imperfect debt enforcement

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  • Beutler, Toni
  • Grobéty, Mathieu

Abstract

Does imperfect enforceability of debt contracts amplify the sensitivity of industry growth to collateral values? To answer this question, we introduce a novel industry-specific measure of real asset redeployability – the ease with which real assets are transferred to alternative uses – as a proxy for liquidation values of collateral. Our measure exploits the heterogeneity of expenditures in new and used capital and the heterogeneity in the composition of real asset holdings across US industries. Using a cross-industry cross-country approach, we find that industry growth is more sensitive to changes in collateral values in countries with weaker debt enforcement.

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  • Beutler, Toni & Grobéty, Mathieu, 2019. "The collateral channel under imperfect debt enforcement," European Economic Review, Elsevier, vol. 111(C), pages 336-359.
    • Handle: RePEc:eee:eecrev:v:111:y:2019:i:c:p:336-359
    DOI: 10.1016/j.euroecorev.2018.10.004
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    Cited by:

    1. Grobéty, Mathieu, 2018. "Government debt and growth: The role of liquidity," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 1-22.
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    5. Katarzyna Platt, 2020. "Corporate Bonds And Product Market Competition," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 615-647, August.

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    More about this item

    Keywords

    Growth; Collateral channel; Redeployability; Debt enforcement;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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