Why Do Banks Ask for Collateral and Which Ones?
We examine why banks resort to collateral, and whether their reasons vary according to the type of collateral. We use a unique dataset of bank loans granted to French distressed firms, which contains full information on the type and value of collaterals and the cause of firm default. Our work suggests that information asymmetries are not of prime importance in the decision of the bank to secure a loan, as no type of collateral helps to solve adverse selection and moral hazard problems. The reduction of the loan loss and the observed-risk hypothesis may however explain the use of collateral.
|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +352 46 66 44 6335
Fax: +352 46 66 44 6811
Web page: http://wwwen.uni.lu/luxembourg_school_of_finance
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jimenez, Gabriel & Saurina, Jesus, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2191-2212, September.
- Berger, Allen N. & Udell, Gregory F., 1990.
"Collateral, loan quality and bank risk,"
Journal of Monetary Economics,
Elsevier, vol. 25(1), pages 21-42, January.
- Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, vol. 81(2), pages 255-281, August.
- Booth, James R. & Booth, Lena Chua, 2006. "Loan Collateral Decisions and Corporate Borrowing Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 67-90, February.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- 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.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Gabriel Jiménez & Jesús Saurina, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Banco de Espa�a Working Papers 0414, Banco de Espa�a.
- Boot, Arnoud W A & Thakor, Anjan V & Udell, Gregory F, 1991. "Secured Lending and Default Risk: Equilibrium Analysis, Policy Implications and Empirical Results," Economic Journal, Royal Economic Society, vol. 101(406), pages 458-72, May.
- 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.
- Hans Degryse & Partick Van cayseele, 1998.
"Relationship Lending within a Bank-based System: Evidence from European Small Business Data,"
Center for Economic Studies - Discussion papers
ces9816, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
- 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.
- Marc Cowling, 1999. "The incidence of loan collateralization in small business lending contracts: evidence from the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 6(5), pages 291-293.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
- John S. Gonas & Michael J. Highfield & Donald J. Mullineaux, 2004. "When Are Commercial Loans Secured?," The Financial Review, Eastern Finance Association, vol. 39(1), pages 79-99, 02.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:crf:wpaper:06-07. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martine Zenner)
If references are entirely missing, you can add them using this form.