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Probability of default in collateralized credit operations for small business

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  • Carvalho, Jaimilton
  • Orrillo, Jaime
  • da Silva, Fernanda Rocha Gomes

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.

Suggested Citation

  • Carvalho, Jaimilton & Orrillo, Jaime & da Silva, Fernanda Rocha Gomes, 2020. "Probability of default in collateralized credit operations for small business," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:ecofin:v:52:y:2020:i:c:s1062940819300609
    DOI: 10.1016/j.najef.2019.101129
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    Cited by:

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    More about this item

    Keywords

    General equilibrium; Incomplete markets; Probability of default; D52; C81;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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