Movables as collateral and corporate credit: Loan-level evidence from legal reforms across Europe

Does pledging movables as collateral alter corporate borrowing? To answer this question, we study the effect of collateral law reforms on syndicated bank loans granted across nine European countries that facilitated pledging movables between 1995 and 2019, comparing them to 19 countries that did not. We differentiate firms in sectors of higher versus lower asset movability to strengthen the identification. We find that although the reforms have enabled firms in movable-intensive sectors to issue more secured loans, the average cost of the loans and the number of covenants have also increased. Channel tests suggest that banks may demand more to compensate for the potential wealth redistribution induced by newly issued secured credit, or the unique risk involved with using movables as collateral.