Working Paper: NBER ID: w21911
Authors: Charles W. Calomiris; Mauricio Larrain; Jos M. Libertí; Jason D. Sturgess
Abstract: We demonstrate the central importance of creditors’ ability to use “movable” assets as collateral (as distinct from “immovable” real estate) when borrowing from banks. Using a unique cross-country micro-level loan dataset containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased towards the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production. An analysis of Slovakia’s collateral law reform confirms our findings.
Keywords: collateral laws; lending; sectoral activity; movable assets; immovable assets
JEL Codes: G18; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weak movable collateral laws (G33) | lower loan-to-value ratios for movable assets (G32) |
| weak movable collateral laws (G33) | lower loan-to-value ratios for immovable assets (G21) |
| collateral law reform in Slovakia (K29) | increase in LTVs for movable-backed loans (G21) |
| weak movable collateral laws (G33) | bias in lending towards immovable-based production (G21) |
| collateral law reform in Slovakia (K29) | allocation of resources across sectors (P35) |
| weak movable collateral laws (G33) | lower loan-to-value ratios for loans secured by movable assets (G32) |