Abstract
We identify the valuation of collateral by comparing spreads on loans by the same bank, to the same borrower, at the same origination date, but backed by different types of collateral. Pledging collateral reduces borrowing costs by 23 basis points on average. The effect varies across different types of collateral, with marketable securities being most valuable and real estate and accounts receivables and inventory being more valuable than fixed assets and a blanket lien. Further, we show that collateral is most valuable for riskier and smaller firms and loan prices fall with loan maturity and are sensitive to collateral values.
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