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Determinants of the collateralization of credit by small firms

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  • Heather M. Hulburt

    (Department of Finance, College of Business and Economics, West Virginia University, Morgantown, WV 26506-6025, USA)

  • Frederick C. Scherr

    (Department of Finance, College of Business and Economics, West Virginia University, Morgantown, WV 26506-6025, USA)

Abstract

This study presents results of an empirical investigation of debt collateralization using samples of small firms. We examine the fraction of debt that is collateralized and find substantial support for firm size, firm age, and collateral quality as determinants of collateralization. Our results regarding firm size and age are different from prior research and may stem from basic financial differences between small and large firms. We find mixed support for growth opportunities and taxation and little support for default probability, regulation, and form of legal organization as determinants of collateralization. Copyright © 2003 John Wiley & Sons, Ltd.

Suggested Citation

  • Heather M. Hulburt & Frederick C. Scherr, 2003. "Determinants of the collateralization of credit by small firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 483-501.
  • Handle: RePEc:wly:mgtdec:v:24:y:2003:i:6-7:p:483-501
    DOI: 10.1002/mde.1071
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    References listed on IDEAS

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    1. Stohs, Mark Hoven & Mauer, David C, 1996. "The Determinants of Corporate Debt Maturity Structure," The Journal of Business, University of Chicago Press, vol. 69(3), pages 279-312, July.
    2. Elijah Brewer & Hesna Genay & William E. Jackson & Paula R. Worthington, 1996. "How are small firms financed? Evidence from small business investment companies," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-18.
    3. Sheng-Syan Chen & Gillian H. H. Yeo & Kim Wai Ho, 1998. "Further Evidence on the Determinants of Secured versus Unsecured Loans," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3&4), pages 371-385.
    4. Oliver Hart & John Moore, 1990. "A Theory of Corporate Financial Structure Based on the Seniority of Claims," STICERD - Theoretical Economics Paper Series 217, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-363, June.
    6. Dennis, Steven & Nandy, Debarshi & Sharpe, Lan G., 2000. "The Determinants of Contract Terms in Bank Revolving Credit Agreements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(01), pages 87-110, March.
    7. Leeth, John D. & Scott, Jonathan A., 1989. "The Incidence of Secured Debt: Evidence from the Small Business Community," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 379-394, September.
    8. Rajan, Raghuram & Winton, Andrew, 1995. " Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-1146, September.
    9. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    10. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-631, June.
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    Cited by:

    1. Metzger, Georg, 2007. "On the Role of Entrepreneurial Experience for Start-up Financing: An Empirical Investigation for Germany," ZEW Discussion Papers 07-047 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Régis Blazy & Laurent Weill, 2006. "Why Do Banks Ask for Collateral and Which Ones ?," Working Papers of LaRGE Research Center 2006-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. An, Can & Pan, Xiaofei & Tian, Gary Gang, 2014. "Ownership structure and collateral requirements: Evidence from China's listed firms," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 168-178.

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