Collateral damage? On collateral, corporate financing and performance

Arbeitspapier

In this paper, we investigate the economy-wide effects of the collateral channel by exploiting: (i) a legal reform in Sweden in 2004 that reduced collateral values, and (ii) a dataset that covers all incorporated firms in Sweden over the period 2000-2006. We find that the loss in collateral value reduces both the amount and the maturity of firm debt and leads firms to contract investment, employment, and assets. The legal reform may distort investment and asset allocation decisions, as firms that reduce their holdings of assets with low collaterizable value and firms that hold more liquid assets consequently become less productive and innovative. Our results therefore document the potency of a collateral channel outside of a crisis.

Object Details

• ISBN: 978-92-899-2166-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1918

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: collateral ; differences-in-differences ; financial constraints ; floating lien ; investment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cerqueiro, Geraldo ; Ongena, Steven ; Roszbach, Kasper
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2866/981745
• Handle: http://hdl.handle.net/10419/154351
• Last update: 10.03.2025, 11:44 AM CET