The uniqueness of short-term collateralization

About

Countries

Data & Research

Learning

News

Projects & Operations

Publications

Topics

Home > Data & Research > Research > Author Profile > Report Details

The uniqueness of short-term collateralization, Volume 1

Author:	Klapper, Leora;	Collection Title:	Policy, Research working paper ; no. WPS 2544
Date Stored:	2001/03/09	Document Date:	2001/02/28
Document Type:	Policy Research Working Paper	Language:	English
Major Sector:	Finance	Report Number:	WPS2544
Sub Sectors:	Other Finance	SubTopics:	International Terrorism & Counterterrorism; Economic Theory & Research; Business in Development; Banks & Banking Reform; Economic Adjustment and Lending
Volume No:	1

Summary: The author finds evidence that lines of credit secured by accounts receivable are associated with business borrowers with a high risk of default. While an unsecured short-term loan is repaid from the borrower's future cash flow, a loan secured by accounts receivable (a unique form of "inside" collateral) is repaid from previously generated and observed sales (the borrower's trade credit terms to its customers). Consequently, lenders that secure accounts receivable are most concerned with the credit risk of the borrower's customers and the borrower's ability to continue to generate new sales. A stylized theoretical model demonstrates that the value of a secured line-of-credit loan in minimizing contracting costs is associated with the borrower's business risk and the quality of the borrower's customers. Empirical tests on a sample of publicly traded U.S. manufacturing firms find that firms with secured line of credit loans are observably riskier and have fewer expected growth opportunities. The author's findings suggest that observably riskier borrowers can borrow more on a secured than on an unsecured basis. The results highlight the important role of secured letters of credit in providing liquidity to risky, credit-constrained firms that might not have access to external financing through other channels.


Official Documents Official, scanned versions of documents (may include signatures, etc.)
File Type		Description	File Size (mb)

	PDF 44 pages	Official version*	3.08 (approx.)
	Text	Text version**


Light-Weight Documents Lighter (less MB) documents which may or may not be the final, official version
File Type		Description	File Size (mb)

	PDF 38 pages	WPS2544	0.12

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.

** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.

Permanent URL for this page: http://go.worldbank.org/UEMBPIME40