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Movables as Collateral and Corporate Credit: Loan-Level Evidence from Legal Reforms across Europe

Author

Listed:
  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Walid Saffar

    (Hong Kong Polytechnic University - School of Accounting and Finance)

  • Yuan Sun

    (Hong Kong Polytechnic University - School of Accounting and Finance)

  • Lai Wei

    (Lingnan University - Department of Finance and Insurance)

Abstract

Does pledging movables as collateral alter corporate borrowing? To answer this question, we study the effect of collateral law reforms on syndicated bank loans granted across nine European countries that facilitated pledging movables between 1995 and 2019, comparing them to nineteen countries that did not. We find that although the reforms have enabled firms to issue more secured loans, the average cost of the loans and the number of covenants has also increased. Banks may demand more to compensate for both the potential wealth redistribution induced by newly issued secured credit and the extra monitoring involved to mitigate concerns about using movables as collateral.

Suggested Citation

  • Steven Ongena & Walid Saffar & Yuan Sun & Lai Wei, 2022. "Movables as Collateral and Corporate Credit: Loan-Level Evidence from Legal Reforms across Europe," Swiss Finance Institute Research Paper Series 22-75, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2275
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    Keywords

    Cost of Debt; Collateral Laws; Access to Credit;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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