Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/85071 
Year of Publication: 
2013
Series/Report no.: 
Kiel Working Paper No. 1879
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
We offer a new test of the ex ante theory of collateral. Theory states that lenders rely less on collateral if they have better information about borrowers. We test this by contrasting the use of collateral between formal and - better informed - informal lenders in a developing financial market. Indeed, formal lenders rely about 40% more often on collateral than informal lenders, controlling for conventional determinants of collateral. Moreover, having better information about borrowers has implications within lender groups: formal lenders rely less on collateral with longer borrower-relationship and informal lenders rely less on collateral with shorter distance to the borrower.
Subjects: 
collateral
informal lenders
private information
relationship lending
distance
JEL: 
G21
O16
O17
Document Type: 
Working Paper

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