Outside Collateral, Preserving the Value of Inside Collateral and Sorting

Artikel

Within a framework of debt renegotiation and a priori private information, what is the role of outside and inside collateral? The literature shows that unobservability of the project’s returns implies that the high-risk borrower is more inclined to pledge outside collateral than is the low-risk borrower. However, this finding does not hold when the bank can observe neither the project’s returns nor the borrower’s risk class. We show that in this scenario, low-valued outside collateral enables the low-risk entrepreneur to select himself, but high value outside collateral has no sorting potential at all. We also show that a bank’s incentive to sort borrowers may induce investment to preserve the value of the inside collateral and to build up restructuring know-how. If self-selection via outside collateral is operating, restructuring know-how reduces the cost of separation. If outside collateral gives rise to pooling, restructuring know-how may restore sorting.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Journal: Schmalenbach Business Review ; ISSN: 1439-2917 ; Volume: 53 ; Year: 2001 ; Issue: 4 ; Pages: 321-350 ; Frankfurt: Verlagsgruppe Handelsblatt

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Bankruptcy; Liquidation
• Thema: asymmetric information ; restructuring know how ; adverse selection

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Schäfer, Dorothea
• Ereignis: Veröffentlichung
• (wer): Verlagsgruppe Handelsblatt
• (wo): Frankfurt
• (wann): 2001

Weitere Informationen

• Handle: http://hdl.handle.net/10419/141278
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ