Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/81907
Authors: 
Cerqueiro, Geraldo
Ongena, Steven
Roszbach, Kasper
Year of Publication: 
2012
Series/Report no.: 
Sveriges Riksbank Working Paper Series 257
Abstract: 
We study a change in the Swedish law that exogenously reduced the value of all outstanding company mortgages, i.e., a type of collateral that is comparable to the floating lien. We explore this natural experiment to identify how collateral determines borrower quality, loan terms, access to credit and bank monitoring of business term loans. Using a differences-in-differences approach, we find that following the change in the law and the loss in collateral value borrowers pay a higher interest rate on their loans, receive a worse quality assessment by their bank, and experience a substantial reduction in the supply of credit by their bank. The reduction in collateral value also precedes a decrease in bank monitoring intensity and frequency of both the collateral and the borrower, consistent with models in which the pledging of risky assets incentivizes banks to monitor.
Subjects: 
collateral
credit rationing
differences-in-differences
floating lien
loan contracts
monitoring
natural experiment
JEL: 
D82
G21
Document Type: 
Working Paper

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