Abstract
This paper aims to investigate the determinants of collateral requirements for loans that are extended to small and medium-sized enterprises in less-developed countries. Our primary data source consists of the results from firms in Eastern Europe and Central Asia from the Business Environment and Enterprise Performance Survey, which is compiled by the World Bank and the European Bank for Reconstruction and Development. The results show that borrower-specific variables are more important than country-specific variables in determining collateral requirements on loan contracts. The strongest evidence in our paper emphasises the importance of borrower risk and loan cost in collateral determinants.
Highlights
Borrowing difficulties can be one of the most important obstacles to starting and running a business for small and medium enterprises (SMEs), in less– developed transition economies
The objective of our paper is to investigate the determinants of collateral requirements on loans extended to SMEs in transition countries through the examination of firm– specific, lender market–specific and country–specific variables
From a methodological point of view, we contribute to the literature by examining the determinants of the degree of collateral for loans
Summary
Borrowing difficulties can be one of the most important obstacles to starting and running a business for small and medium enterprises (SMEs), in less– developed transition economies. The empirical literature on collateralisation has largely focused on developed countries, whereas only a few studies have examined this issue in the context of less–developed and transition economies. There is a paucity of empirical data regarding this topic To address this deficiency, our paper presents a wide range of cross–country data from less–developed countries, including transition economies from Eastern Europe and Central Asia, and yields new results and important insights for businesses and policy makers that operate in these countries.
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