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How Do Laws and Institutions Affect Recovery Rates for Collateral?

Degryse, H., Ioannidou, V. ORCID: 0000-0002-7996-2346, Liberti, J. M. and Sturgess, J. (2020). How Do Laws and Institutions Affect Recovery Rates for Collateral?. Review of Corporate Finance Studies, 9(1), pp. 1-43. doi: 10.1093/rcfs/cfz011

Abstract

Using unique internal bank data on ex ante appraised liquidation and market values of assets pledged as collateral in sixteen countries, we show that laws and institutions that strengthen creditor protection increase expected recovery rates for collateral. Stronger creditor protection increases expected recovery rates for movable collateral relative to immovable collateral and shifts the composition of collateral toward movable assets, thereby increasing debt capacity through both higher loan-to-values and attenuating the creditor's liquidation bias. Our results suggest that the recovery rate for collateral is an important first-stage mechanism through which creditor protection can improve contracting efficiency and enhance access to credit.

Publication Type: Article
Additional Information: © 2019 The Author(s) 2019. This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Corporate Finance Studies following peer review. The version of record Degryse, H., Ioannidou, V. , Liberti, J. M. and Sturgess, J. (2020). How Do Laws and Institutions Affect Recovery Rates for Collateral?. Review of Corporate Finance Studies, 9(1), pp. 1-43, is available online at: https://doi.org/10.1093/rcfs/cfz011
Subjects: H Social Sciences > HG Finance
Departments: Business School > Finance
Date Deposited: 08 Jan 2021 16:11
URI: https://openaccess.city.ac.uk/id/eprint/25484
[img] Text - Accepted Version
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