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Nominal and true cost of loan collateral

  • Niinimäki, J.-P.
Registered author(s):

    This paper explores costs and proceeds from loan collateral in the credit market with ex-ante asymmetric information when collateral value and the probability of project success fluctuate. A borrower is willing to pledge collateral if (i) its future value is correlated with the probability of project success, or (ii) its value fluctuates strongly, or (iii) it is funded with loan capital. When one of the conditions is satisfied, in contrast to Bester (1985), a high-risk borrower may be more willing to pledge collateral than a low-risk borrower. The paper is related to topical subprime crises and real estate collateral.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426611001130
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 10 (October)
    Pages: 2782-2790

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:10:p:2782-2790
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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    1. Sommervoll, Dag Einar & Borgersen, Trond-Arne & Wennemo, Tom, 2010. "Endogenous housing market cycles," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 557-567, March.
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    5. 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.
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    15. repec:dgr:kubcen:201013 is not listed on IDEAS
    16. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
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