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Collateral and Adverse Selection in Transition Countries

  • Laurent Weill
  • Christophe J. Godlewski

This paper tackles the question of knowing whether collateral helps to solve adverse selection problems in transition countries. We use a unique data set of about four hundred bank loans in sixteen transition countries. Our findings support the view of a positive link between the presence of collateral and the risk premium, which accords with the observed risk hypothesis. This suggests that collateral does not mitigate adverse selection problems in transition countries.

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Article provided by M.E. Sharpe, Inc. in its journal Eastern European Economics.

Volume (Year): 47 (2009)
Issue (Month): 1 (January)
Pages: 29-40

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Handle: RePEc:mes:eaeuec:v:47:y:2009:i:1:p:29-40
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=106044

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  1. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
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  7. Régis Blazy & Laurent Weill, 2013. "Why do banks ask for collateral in SME lending?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(13), pages 1109-1122, July.
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  12. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
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  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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