The Cross-Country Magnitude and Determinants of Collateral Borrowing

Using the World Bank Enterprise Survey covering 6,800 firms across 43 developing countries, this paper investigates the prevalence and determinants of collateralized borrowing. It focuses on the following two aspects: (1) whether firms' loans from financial institutions require collateral (the extensive margin) and (2) the collateral value relative to the loan value (the intensive margin). On the first aspect, it finds that collateral borrowing is prevalent. On average, 73 percent of loans from financial institutions require collateral. Firms that are small or sell domestically are significantly less likely to pledge collateral. Shorter loans and loans from non-bank financial institutions are also less often associated with collateral. On the second aspect, it finds that on average the loan value is at least 72 percent of the collateral value. The only robust and significant determinants of the collateral value are the type of assets used for collateral. The analysis also checks whether countries' income and institutions affect collateralized borrowing. It finds that firms in countries with higher income and better institutions and credit information are significantly less likely to pledge collateral. These factors, however, have little impact on collateral values.

Bibliographic Details

Main Authors:	Qian, Rong, Nguyen, Ha
Language:	English en_US
Published:	World Bank, Washington, DC 2012-03
Subjects:	ACCESS TO CREDIT, ACCESS TO FINANCE, ACCESSIBILITY, ACCOUNT RECEIVABLE, ACCOUNTS RECEIVABLE, AMOUNT OF COLLATERAL, AMOUNT OF LOAN, ASSET PRICES, ASSET VALUE, AVAILABILITY OF CREDIT, BANK LENDING, BANK LOAN, BANK POLICY, BANK RISK, BANKING SECTOR, BANKS, BOND, BOND RATINGS, BONDS, BORROWER, BORROWING, BORROWING CAPACITY, BUSINESS CYCLE, BUSINESS INVESTMENT, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MARKETS, CASH FLOW, CHECKS, CLAIM, COLLATERAL, COLLATERAL AMOUNT, COLLATERAL REQUIREMENT, COLLATERALIZATION, COMMERCIAL BANKS, CORPORATE FINANCE, CORPORATE INVESTMENT, CORRUPTION, COUNTRY DUMMIES, COUNTRY FIXED EFFECT, COUNTRY FIXED EFFECTS, CREDIT BUREAU, CREDIT CONSTRAINT, CREDIT CONSTRAINTS, CREDIT COOPERATIVE, CREDIT COOPERATIVES, CREDIT INFORMATION, CREDIT INFORMATION SYSTEM, CREDIT MARKET, CREDIT RATINGS, CREDIT RATIONING, CREDIT REGISTRY, CREDIT SCORES, CREDIT UNIONS, CREDIT WORTHINESS, CREDITORS, DEBT, DEBT CAPACITY, DEBTORS, DEBTS, DEFAULT RISK, DEFAULTS, DEPENDENT, DEPOSIT, DEPOSITS, DEVELOPING COUNTRIES, DIVIDEND, DIVIDEND PAYOUTS, DOMESTIC BANK, DOMESTIC CREDIT, DOMESTIC MARKET, DUMMY VARIABLE, ECONOMIC ACTIVITY, ECONOMIC CRISIS, ECONOMIC DEVELOPMENT, EMPLOYMENT, EQUIPMENT, EQUITIES, EQUITY SECURITIES, ESTATE PROPERTIES, EXPORTER, EXPORTERS, EXTERNAL FINANCE, EXTERNALITIES, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCE COMPANIES, FINANCIAL ASSETS, FINANCIAL CONSTRAINTS, FINANCIAL CRISES, FINANCIAL DEVELOPMENT, FINANCIAL FACTORS, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIARY, FINANCIAL OBSTACLES, FINANCIAL RESOURCES, FINANCIAL STATEMENT, FINANCIAL STUDIES, FINANCING CONSTRAINT, FINANCING CONSTRAINTS, FINANCING OBSTACLES, FINANCING SOURCES, FIRM GROWTH, FOREIGN FIRM, FORMAL BANKS, FORMAL FINANCIAL INSTITUTIONS, FORMAL LENDING, GOVERNANCE INDICATORS, HOUSEHOLDS, ILLIQUIDITY, INCOME, INCOME LEVELS, INDUSTRIAL LOANS, INFORMAL BORROWING, INFORMAL FINANCE, INFORMAL LENDERS, INFORMATION ASYMMETRIES, INFORMATION ASYMMETRY, INSIDER TRADING, INSTRUMENT, INTEREST RATE, INTEREST RATE SPREAD, INTERNATIONAL BANK, INTERNATIONAL FINANCIAL CRISES, INVENTORIES, JOINT VENTURE, LACK OF ASSETS, LACK OF COLLATERAL, LARGE FIRMS, LEGAL SYSTEM, LEGAL SYSTEM EFFICIENCY, LENDER, LENDERS, LENDING DECISIONS, LENDING INSTITUTIONS, LEVERAGE, LINE OF CREDIT, LINES OF CREDIT, LIQUIDATION, LIQUIDATION COST, LIQUIDITY CONSTRAINTS, LIQUIDITY CRUNCH, LOAN, LOAN CHARACTERISTICS, LOAN QUALITY, MACROECONOMICS, MARKET DEVELOPMENT, MICROFINANCE, MICROFINANCE INSTITUTIONS, MONETARY POLICY, MORTGAGE, MORTGAGE CREDIT, NEGATIVE SHOCKS, NONBANK INSTITUTIONS, OUTPUT, OVERDRAFT, OVERDRAFT FACILITIES, OVERDRAFT FACILITY, PERSONAL ASSET, PERSONAL ASSETS, PLEDGE COLLATERAL, PORTFOLIO, PORTFOLIO CONSTRAINTS, PRIVATE BANK, PRIVATE BANKS, PRIVATE COMMERCIAL BANKS, PRIVATE CREDIT, PRIVATE CREDIT BUREAU, PROBABILITY OF DEFAULT, PUBLIC BANKS, PUBLIC CREDIT, PUBLIC ENTERPRISES, REAL ESTATE, RECESSIONS, REPAYMENT, REPUTATION, RETURN, RULE OF LAW, SAVINGS, SAVINGS DEPOSITS, SECURITIES, SHAREHOLDER, SMALL FIRM FINANCE, SPECIFIC ASSETS, STATE BANK, STATE BANKS, STOCK MARKET, STOCK MARKET DEVELOPMENT, STOCKS, TAXATION, TRADE CREDITS, VALUABLE ASSETS, VALUE OF COLLATERAL, VOLATILITY, WORLD DEVELOPMENT INDICATOR,
Online Access:	http://documents.worldbank.org/curated/en/2012/03/15949444/cross-country-magnitude-determinants-collateral-borrowing https://hdl.handle.net/10986/19878
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