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Further Evidence on the Determinants of Secured versus Unsecured Loans

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  • Sheng‐Syan Chen
  • Gillian H. H. Yeo
  • Kim Wai Ho

Abstract

Using a unique data set collected from financial statements of all Singapore listed firms from 1983 to 1991, we provide international evidence on the determinants of the amount of secured loans as a fraction of total secured and unsecured loans. This data set comprises a much wider range of firms than most previous studies. We show that consistent with the agency‐cost hypothesis, firms with more growth opportunities use more secured loans. This is in contrast to the opposite result reported in Barclay and Smith (1995b) who measure secured debt as a fraction of total long‐term fixed claims. We also find strong support for the hypothesis that smaller firms use more secured loans. In contrast, Leeth and Scott (1989), using survey data on small firms, find an insignificant firm size effect. Finally, we show that the use of secured loans is positively related to asset riskiness and loan size, and is negatively related to asset specificity. Firm quality has no explanatory power.

Suggested Citation

  • Sheng‐Syan Chen & Gillian H. H. Yeo & Kim Wai Ho, 1998. "Further Evidence on the Determinants of Secured versus Unsecured Loans," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3‐4), pages 371-385, April.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:3-4:p:371-385
    DOI: 10.1111/1468-5957.00192
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    Cited by:

    1. Alex Petkevich & Andrew Prevost, 2018. "Managerial ability, information quality, and the design and pricing of corporate debt," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 1033-1069, November.
    2. Chien-An Wang & Chin-Oh Chang, 2008. "Is It a Heavy Log that Broke the Camel’s Back? Evidence of the Credit Channel in Taiwan’s Construction Industry," International Real Estate Review, Global Social Science Institute, vol. 11(1), pages 38-64.
    3. Liu, Yong-Chin & Chen, Hsiang-Ju, 2012. "Economic conditions, lending competition, and evaluation effect of credit line announcements on borrowers," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 438-458.
    4. Heather M. Hulburt & Frederick C. Scherr, 2003. "Determinants of the collateralization of credit by small firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 483-501.
    5. John Armour, 2006. "Should we redistribute in insolvency," Working Papers wp319, Centre for Business Research, University of Cambridge.
    6. Liang Han & Stuart Fraser & David J. Storey, 2009. "The Role of Collateral in Entrepreneurial Finance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(3‐4), pages 424-455, April.
    7. An, Can & Pan, Xiaofei & Tian, Gary Gang, 2014. "Ownership structure and collateral requirements: Evidence from China's listed firms," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 168-178.
    8. Bart M. Lambrecht, 2009. "Discussion of The Role of Collateral in Entrepreneurial Finance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(3‐4), pages 456-460, April.

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