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The cross-country magnitude and determinants of collateral borrowing


  • Nguyen, Ha
  • Qian, Rong


Using the World Bank Enterprise Survey covering 6,800 firms across 43 developing countries, this paper investigates the prevalence and determinants of collateralized borrowing. It focuses on the following two aspects: (1) whether firms'loans from financial institutions require collateral (the extensive margin) and (2) the collateral value relative to the loan value (the intensive margin). On the first aspect, it finds that collateral borrowing is prevalent. On average, 73 percent of loans from financial institutions require collateral. Firms that are small or sell domestically are significantly less likely to pledge collateral. Shorter loans and loans from non-bank financial institutions are also less often associated with collateral. On the second aspect, it finds that on average the loan value is at least 72 percent of the collateral value. The only robust and significant determinants of the collateral value are the type of assets used for collateral. The analysis also checks whether countries'income and institutions affect collateralized borrowing. It finds that firms in countries with higher income and better institutions and credit information are significantly less likely to pledge collateral. These factors, however, have little impact on collateral values.

Suggested Citation

  • Nguyen, Ha & Qian, Rong, 2012. "The cross-country magnitude and determinants of collateral borrowing," Policy Research Working Paper Series 6001, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6001

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    References listed on IDEAS

    1. Vincenzo Quadrini & Fabrizio Perri, 2010. "International recessions," 2010 Meeting Papers 222, Society for Economic Dynamics.
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    5. Enrique G. Mendoza & Javier Bianchi, 2010. "Overborrowing, financial crises and ‘macro-prudential’ taxes," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
    6. Olivier Jeanne & Anton Korinek, 2010. "Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach," American Economic Review, American Economic Association, vol. 100(2), pages 403-407, May.
    7. Benmelech, Efraim & Bergman, Nittai K., 2009. "Collateral pricing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 339-360, March.
    8. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    9. José M. Liberti & Atif R. Mian, 2010. "Collateral Spread and Financial Development," Journal of Finance, American Finance Association, vol. 65(1), pages 147-177, February.
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    Cited by:

    1. Ana Fostel & John Geanakoplos & Gregory Phelan, 2015. "Global Collateral: How Financial Innovation Drives Capital Flows and Increases Financial Instability," Department of Economics Working Papers 2015-12, Department of Economics, Williams College, revised Feb 2017.
    2. Kislat, Carmen & Menkhoff, Lukas & Neuberger, Doris, 2013. "The use of collateral in formal and informal lending," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79765, Verein für Socialpolitik / German Economic Association.
    3. Fungáčová, Zuzana & Kochanova, Anna & Weill, Laurent, 2015. "Does Money Buy Credit? Firm-Level Evidence on Bribery and Bank Debt," World Development, Elsevier, vol. 68(C), pages 308-322.
    4. Inessa Love & María Martinez Pería & Sandeep Singh, 2016. "Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Financing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 1-37, February.
    5. Inessa Love & Maria Soledad Martinez Peria & Sandeep Singh, 2014. "Collateral Registries for Movable Assets: Does Their Introduction Spur Firms' Access to Bank Finance?," Working Papers 201422, University of Hawaii at Manoa, Department of Economics.
    6. Love, Inessa & Peria, Maria Soledad Martinez & Singh, Sandeep, 2013. "Collateral registries for movable assets : does their introduction spur firms'access to bank finance ?," Policy Research Working Paper Series 6477, The World Bank.

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    Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Banks&Banking Reform; Emerging Markets;

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