The Procyclical Leverage Effect of Collateral Value on Bank Loans -- Evidence from the Transaction Data of Taiwan
Resource
Economic Inquiry, 45(2), 395-406
Journal
Economic Inquiry
Pages
395-406
Date Issued
2007
Date
2007
Author(s)
Abstract
We investigated the empirical relationship between firms' collateral values and land-secured loans over asset price cycles. A simultaneous equation model of loan demand and supply was estimated using a transaction-level data set from Taiwan. The data set contains collateral information and identifies lenders and borrowers. We found that the value of collateralizable assets has positive and significant effects on loan amounts and that the leverage effect of collateral is procyclical to asset price cycles. Firms in the electronics industry, the star industry in the sample period, are found to borrow more than other firms do at each marginal dollar of collateral. (JEL C50, E30, G20). © 2006 Western Economic Association International.
Type
journal article
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