Arbeitspapier

Does Collateral Reduce Loan-Size Credit Rationing? Survey Evidence

In theory, the use of collateral in credit contracting should mitigate the information problems that are widely held to be the primary cause of credit rationing. However, direct empirical evidence of the link between collateral use and credit rationing is scant. This paper examines the relationship between collateral and credit rationing using survey data that provides clean measures of quantity and loan size rationing. We find that selection problems arising from the loan application process and co-determination of loan terms significantly influence the link between collateral and rationing. Accounting for these problems, our results suggest that collateral reduces the likelihood of experiencing loan-size credit rationing by between 15 and 40 percentage points, and that collateral also decreases the relative loan amount rationed.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 2018:36

Classification
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Corporate Finance and Governance: Other
Subject
Loan-Size rationing
Collateral
Small business
Information asymmetry

Event
Geistige Schöpfung
(who)
Chala, Alemu Tulu
Forssbaeck, Jens
Event
Veröffentlichung
(who)
Lund University, School of Economics and Management, Department of Economics
(where)
Lund
(when)
2018

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Chala, Alemu Tulu
  • Forssbaeck, Jens
  • Lund University, School of Economics and Management, Department of Economics

Time of origin

  • 2018

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