Working Paper: NBER ID: w21690
Authors: Murillo Campello; Mauricio Larrain
Abstract: Recent reforms across Eastern European countries gave more flexibility and information for parties to engage in secured debt transactions. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more as a result of such reforms. Those firms also invested more, hired more, and became more efficient and profitable following the changes in the contracting environment. The financial deepening we document triggered important reallocation effects: Firms affected by the reforms increased their share of fixed assets and employment in the economy.
Keywords: Collateral Reforms; Access to Credit; Economic Activity; Eastern Europe; Movable Assets
JEL Codes: G32; K22; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Collateral reforms (G18) | Increase in leverage ratios (G32) |
| Higher movable assets (G32) | Abandonment of zero-leverage status (G33) |
| Collateral reforms (G18) | Expansion of access to credit (G21) |
| More movable assets (G19) | Increased investment in fixed assets (G31) |
| More movable assets (G19) | Hiring more workers (J23) |
| More movable assets (G19) | Increased profitability and productivity (O49) |