How Do Laws and Institutions affect Recovery Rates on Collateral?

Hans Degryse, Vasso Ioannidou (), José María Liberti and Jason Sturgess
Additional contact information
José María Liberti: DePaul University

No 870, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We show that laws and institutions that grant creditors stronger enforcement rights and bargaining power upon default increase expected recovery rates on collateral. Using unique data that provides ex-ante appraised liquidation values on secured loans for a single global bank, we estimate within-borrower effects of enforcement law on expected recovery rates. We show that movable collateral, which is less redeployable, susceptible to agency problems, and faster to depreciate, exhibits lower expected recovery rates that are more vulnerable to enforcement. Further, the bank compensates for lower expected recovery rates through higher interest rates. The results highlight that a lender’s expected recovery rate is a first stage mechanism through which stronger enforcement law affects loan-to-value ratios, lending decisions, and real outcomes.

JEL-codes: G2 G33 K4 (search for similar items in EconPapers)
Date: 2018-09-30
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2018/wp870.pdf (application/pdf)

Related works:
Journal Article: How Do Laws and Institutions Affect Recovery Rates for Collateral? (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:870

Access Statistics for this paper

More papers in Working Papers from Queen Mary University of London, School of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Nicholas Owen ( this e-mail address is bad, please contact ).