THE PROCYCLICAL LEVERAGE EFFECT OF COLLATERAL VALUE ON BANK LOANS-EVIDENCE FROM THE TRANSACTION DATA OF TAIWAN

"We investigated the empirical relationship between firms' collateral values and land-secured loans over asset price cycles. A simultaneous equation model of loan demand and supply was estimated using a transaction-level data set from Taiwan. The data set contains collateral information and identifies lenders and borrowers. We found that the value of collateralizable assets has positive and significant effects on loan amounts and that the leverage effect of collateral is procyclical to asset price cycles. Firms in the electronics industry, the star industry in the sample period, are found to borrow more than other firms do at each marginal dollar of collateral". ("JEL" C50, E30, G20) Copyright 2006 Western Economic Association International.