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Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity

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  • Murillo Campello
  • Mauricio Larrain

Abstract

Recent reforms across Eastern European countries have given more flexibility and information to parties to engage in secured debt transactions. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more as a result. Those firms also invested more, hired more, and became more efficient and profitable following the changes in the contracting environment. The financial deepening we document triggered important reallocation effects: firms affected by the reforms increased their share of fixed assets and employment in the economy. Received August 15, 2014; accepted October 23, 2015 by Editor David Denis.

Suggested Citation

  • Murillo Campello & Mauricio Larrain, 2016. "Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity," The Review of Financial Studies, Society for Financial Studies, vol. 29(2), pages 349-383.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:2:p:349-383.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv069
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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