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The Incidence of Secured Debt: Evidence from the Small Business Community

Published online by Cambridge University Press:  06 April 2009

John D. Leeth  and
Jonathan A. Scott
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Abstract

Critics claim that theories of secured debt fail to explain the widespread use of collateral because they incorrectly predict when a loan will be secured. This paper provides the first rigorous statistical test of the transaction cost models of secured debt. Data from two samples of over 1,000 small business loans generally support the common set of predictions of these theories. The incidence of secured debt is positively related to probability of default, loan size, loan maturity, and marketability of assets. Changes in the legal and economic environment also alter firms' decisions regarding the pledging of collateral.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 3 , September 1989 , pp. 379 - 394
Copyright
Copyright © School of Business Administration, University of Washington 1989

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