Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70743
Authors: 
Berger, Allen N.
Frame, W. Scott
Ioannidou, Vasso
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2010-6
Abstract: 
Collateral is a widely used, but not well understood, debt-contracting feature. Two broad strands of theoretical literature explain collateral as arising from the existence of either ex ante private information or ex post incentive problems between borrowers and lenders. However, the extant empirical literature has been unable to isolate each of these effects. This paper attempts to do so using a credit registry that is unique in that it allows the researcher to have access to some private information about borrower risk that is unobserved by the lender. The data also include public information about borrower risk, loan contract terms, and ex post performance for both secured and unsecured loans. The results suggest that the ex post theories of collateral are empirically dominant although the ex ante theories are also valid for customers with short borrower-lender relationships that are relatively unknown to the lender.
Subjects: 
collateral
asymmetric information
banks
JEL: 
G21
D82
G38
Document Type: 
Working Paper

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