Probability of default in collateralized credit operations for small business |
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| Affiliation: | 1. Secretaria de Estado de Educaç ao do Distrito Federal, Mexico;2. Graduate Program in Economics, Catholic University of Brasilia, Brazil;3. Federal University of Mato Grosso, Brazil |
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| Abstract: | ![]()
The paper examines how the collateral affects the probability of default for small firms. We present a stylized theoretical model to derive the relationship between the level of collateral and subsequent loan default. We find that the probability of default is negatively correlated with the level of collateral, which is intuitive. Subsequently, we test this relationship by using a proprietary database of collateralized loans of small Brazilian enterprises. |
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| Keywords: | General equilibrium Incomplete markets Probability of default D52 C81 |
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