The paradox of pledgeability

• 成果类型: Article
• 署名作者: Donaldson, Jason Roderick; Gromb, Denis; Piacentino, Giorgia
• 署名单位: Washington University (WUSTL); Centre for Economic Policy Research - UK; Hautes Etudes Commerciales (HEC) Paris; Columbia University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.05.005
• 发表日期: 2020
• 关键词: Collateral; SECURED DEBT; Absolute priority rule; Pledgeability

摘要

We develop a model in which collateral serves to protect creditors from the claims of other creditors. We find that, paradoxically, borrowers rely most on collateral when pledgeability is high. This is when taking on new debt is easy, which dilutes existing creditors. Creditors thus require collateral for protection against possible dilution by collateralized debt. There is a collateral rat race. But collateralized borrowing has a cost: it encumbers assets, constraining future borrowing and investment. There is a collateral overhang. Our results suggest that policies aimed at increasing the supply of collateral can backfire, triggering an inefficient collateral rat race. Likewise, upholding the absolute priority of secured debt can exacerbate the rat race. (C) 2019 Published by Elsevier B.V.