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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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6001.

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Date of creation: 01 Mar 2012
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Handle: RePEc:wbk:wbrwps:6001
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  1. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 71-105, 09.
  2. Olivier J. Blanchard, 1985. "The Wage Price Spiral," NBER Working Papers 1771, National Bureau of Economic Research, Inc.
  3. Vincenzo Quadrini & Fabrizio Perri, 2010. "International recessions," 2010 Meeting Papers 222, Society for Economic Dynamics.
  4. Javier Bianchi & Enrique G. Mendoza, 2010. "Overborrowing, Financial Crises and 'Macro-prudential' Taxes," NBER Working Papers 16091, National Bureau of Economic Research, Inc.
  5. Olivier Jeanne & Anton Korinek, 2010. "Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach," NBER Working Papers 15927, National Bureau of Economic Research, Inc.
  6. José M. Liberti & Atif R. Mian, 2010. "Collateral Spread and Financial Development," Journal of Finance, American Finance Association, vol. 65(1), pages 147-177, 02.
  7. Javier Bianchi, 2010. "Credit Externalities: Macroeconomic Effects and Policy Implications," American Economic Review, American Economic Association, vol. 100(2), pages 398-402, May.
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