IDEAS home Printed from https://ideas.repec.org/p/cer/papers/wp541.html
   My bibliography  Save this paper

Loans for Better Living: The Role of Informal Collateral

Author

Listed:
  • Gabriela Kuvikova

Abstract

Consumers with insufficient resources can finance purchases by applying for specific purpose loans or unspecified purpose loans. I examine the default gap of these two types of loans by using a unique dataset of consumer loans from a Czech commercial bank. In line with theoretical models that perceive collateral as a screening device mitigating adverse selection, the paper confirms a negative relationship between the default rate and the presence of informal collateral. More importantly, it is not the purpose for the loan, but mainly the unobserved characteristics of the borrower that drive the default rate. The paper also provides empirical evidence that the interest rate differential between specific purpose loans and unspecified purpose loans is systematically higher than their default rate differential.

Suggested Citation

  • Gabriela Kuvikova, 2015. "Loans for Better Living: The Role of Informal Collateral," CERGE-EI Working Papers wp541, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp541
    as

    Download full text from publisher

    File URL: http://www.cerge-ei.cz/pdf/wp/Wp541.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. William Adams & Liran Einav & Jonathan Levin, 2009. "Liquidity Constraints and Imperfect Information in Subprime Lending," American Economic Review, American Economic Association, vol. 99(1), pages 49-84, March.
    2. Gabriela Kuvikova, 2015. "Does Loan Maturity Matter in Risk-Based Pricing? Evidence from Consumer Loan Data," CERGE-EI Working Papers wp538, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Marshall, Andrew & Tang, Leilei & Milne, Alistair, 2010. "Variable reduction, sample selection bias and bank retail credit scoring," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 501-512, June.
    4. Alberto Abadie & Guido W. Imbens, 2002. "Simple and Bias-Corrected Matching Estimators for Average Treatment Effects," NBER Technical Working Papers 0283, National Bureau of Economic Research, Inc.
    5. Inderst, Roman & Mueller, Holger M., 2007. "A lender-based theory of collateral," Journal of Financial Economics, Elsevier, vol. 84(3), pages 826-859, June.
    6. Boot, Arnoud W A & Thakor, Anjan V & Udell, Gregory F, 1991. "Secured Lending and Default Risk: Equilibrium Analysis, Policy Implications and Empirical Results," Economic Journal, Royal Economic Society, vol. 101(406), pages 458-472, May.
    7. Alena Bicakova, 2007. "Does the Good Matter? Evidence on Moral Hazard and Adverse Selection from Consumer Credit Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 29-66, March.
    8. Joshua D. Angrist, 1998. "Estimating the Labor Market Impact of Voluntary Military Service Using Social Security Data on Military Applicants," Econometrica, Econometric Society, vol. 66(2), pages 249-288, March.
    9. John M. Barron & Byung-Uk Chong & Michael E. Staten, 2008. "Emergence of Captive Finance Companies and Risk Segmentation in Loan Markets: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 173-192, February.
    10. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
    11. Evžen Kocenda & Martin Vojtek, 2011. "Default Predictors in Retail Credit Scoring: Evidence from Czech Banking Data," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(6), pages 80-98, November.
    12. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(4), pages 605-654.
    13. Altman, Edward I., 1980. "Commercial Bank Lending: Process, Credit Scoring, and Costs of Errors in Lending," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(4), pages 813-832, November.
    14. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
    15. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
    16. Will Dobbie & Paige Marta Skiba, 2013. "Information Asymmetries in Consumer Credit Markets: Evidence from Payday Lending," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 256-282, October.
    17. Horváth, Roman & Podpiera, Anca, 2012. "Heterogeneity in bank pricing policies: The Czech evidence," Economic Systems, Elsevier, vol. 36(1), pages 87-108.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berger, Allen N. & Espinosa-Vega, Marco A. & Frame, W. Scott & Miller, Nathan H., 2011. "Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 55-70, January.
    2. Bing Xu & Honglin Wang & Adrian Van Rixtel, 2015. "Do banks extract informational rents through collateral?," BIS Working Papers 522, Bank for International Settlements.
    3. Giorgio Calcagnini & Fabio Farabullini & Germana Giombini, 2009. "Loans, Interest Rates and Guarantees: Is There a Link?," Working Papers 0904, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2009.
    4. Andrea Bellucci & Alexander Borisov & Germana Giombini & Alberto Zazzaro, 2015. "Collateral and Local Lending: Testing the Lender-Based Theory," IAW Discussion Papers 119, Institut für Angewandte Wirtschaftsforschung (IAW).
    5. Chala, Alemu Tulu & Forssbaeck, Jens, 2018. "Does Collateral Reduce Loan-Size Credit Rationing? Survey Evidence," Working Papers 2018:36, Lund University, Department of Economics.
    6. Bing Xu & Honglin Wang & Adrian Van Rixtel, 2015. "Do banks extract informational rents through collateral?," BIS Working Papers 522, Bank for International Settlements.
    7. repec:zbw:bofitp:2016_005 is not listed on IDEAS
    8. Gabriel Jim√Ânez & Vicente Salas-Fum√Ås & Jes√Ös Saurina, 2011. "The Effects of Formal and Informal Contracting in Credit Availability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 109-132, February.
    9. ONO Arito & SAKAI Koji & UESUGI Iichiro, 2008. "The Effects of Collateral on SME Performance in Japan," Discussion papers 08037, Research Institute of Economy, Trade and Industry (RIETI).
    10. Gabriela Kuvikova, 2015. "Does Loan Maturity Matter in Risk-Based Pricing? Evidence from Consumer Loan Data," CERGE-EI Working Papers wp538, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Bellucci, Andrea & Borisov, Alexander & Giombini, Germana & Zazzaro, Alberto, 2019. "Collateralization and distance," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 205-217.
    12. Dias Duarte, Fábio & Matias Gama, Ana Paula & Paulo Esperança, José, 2017. "Collateral-based in SME lending: The role of business collateral and personal collateral in less-developed countries," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 406-422.
    13. Kislat, Carmen & Menkhoff, Lukas & Neuberger, Doris, 2013. "The use of collateral in formal and informal lending," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79765, Verein für Socialpolitik / German Economic Association.
    14. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
    15. Mocetti, Sauro & Viviano, Eliana, 2017. "Looking behind mortgage delinquencies," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 53-63.
    16. Tensie Steijvers & Wim Voordeckers, 2009. "Collateral And Credit Rationing: A Review Of Recent Empirical Studies As A Guide For Future Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 924-946, December.
    17. Arito Ono & Iichiro Uesugi, 2009. "Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 935-960, August.
    18. Ashiqur Rahman & Jaroslav Belas & Tomas Kliestik & Ladislav Tyll, 2017. "Collateral requirements for SME loans: empirical evidence from the Visegrad countries," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 18(4), pages 650-675, July.
    19. Asano, Koji, 2021. "Managing Financial Expertise," MPRA Paper 107665, University Library of Munich, Germany.
    20. Aivazian, Varouj & Gu, Xinhua & Qiu, Jiaping & Huang, Bihong, 2015. "Loan collateral, corporate investment, and business cycle," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 380-392.
    21. Degryse, Hans & Karapetyan, Artashes & Karmakar, Sudipto, 2021. "To ask or not to ask? Bank capital requirements and loan collateralization," Journal of Financial Economics, Elsevier, vol. 142(1), pages 239-260.

    More about this item

    Keywords

    consumer loans; asymmetric information; collateral; default;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp541. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucie Vasiljevova (email available below). General contact details of provider: https://edirc.repec.org/data/eiacacz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.