By Vania Sena
Collateral - normally outlined as an asset used to supply protection for a lender's mortgage - is a vital characteristic of credits contracts and the entire to be had facts means that its use is getting extra pervasive. This informative booklet builds upon contemporary study into this subject. Sena analyses 3 case-studies that revolve round the influence that monetary constraints have on monetary results. within the first case-study, the connection among agencies’ technical potency and extending monetary strain is explored. the writer then is going directly to express, within the moment case examine, that below particular situations, expanding monetary strain and lengthening product industry festival can together have a good impression on companies’ technical potency, whereas now not being real for all sorts of companies. within the 3rd case, she analyses the effect that finance constraints have on women’s start-ups.
Unique and revealing, this is often the 1st publication to deal so generally with the subject of collateral, and as such, is a priceless connection with postgraduates and execs within the fields of macroeconomics, financial and enterprise economics.
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Extra resources for Credit and Collateral
Indeed, for the borrower the choice of the action is costly and it is costlier to choose the good action rather than to choose the bad action. In addition, it is assumed that the marginal returns of a good action are decreasing in the quality of the borrowers and therefore, a good borrower will be less likely to choose a good action than a bad borrower. The loan contract is made of two elements: the interest rate and the collateral requirements. The borrower’s action is chosen after receiving a contract from the bank.
This would be a rather optimistic view. Indeed, I conjecture that more likely, financial constraints condition the individuals’ probability of applying for external funding at the start-up stage. Indeed, it is important not to forget that potential borrowers can self-select themselves and decide not to apply for loans if they expect their application to be rejected by the external funders. This may reflect a correct assessment because the applicants do not possess the attributes (income, collateral) required by lenders.
Borjas and Bronars (1989) explain observed ethnic differences in US self-employment on the basis of consumer discrimination, but they cannot find evidence of the impact of discrimination on self-employment. Finally some research has looked at the possible impact of different government policy measures on self-employment. Bruce (2000) has analysed the differential tax treatment of salaried employment and self-employment and has argued that self-employment is relatively more attractive than salaried employment because of the structure of taxation on self-employment income.