Collateral requirements for SME loans: empirical evidence from the Visegrad countries

Abstract

The purpose of this paper is to examine the determinants of collateral for small and medium enterprises (SMEs) in the context of Visegrad countries: Czech Republic, Slovak Republic, Hungary and Poland. The data set for this paper was obtained from the Business Environment and Enterprise Performance Survey (BEEPS), which was conducted by the World Bank and the European Bank for Reconstruction and Development (EBRD) from 2012–2014. A binary logistic regression model with different specifications was employed to examine the effect of independent variables on the incidence of collateral. The results show that risky borrowers need to pledge collateral and the reduction of asymmetric information can lower the incidence of collateral for SMEs. Moreover, we find that female borrowers are more likely to pledge collateral than male borrowers are. The results also suggest that loans with a longer maturity are more likely to be collateralized than short-term loans. We find evidence that bank-borrower proximity can alleviate the incidence of collateral whereas bank concentration may increase collateral requirements. Policy makers may consider these results to implement policies that can promote bank competition and can lower collateral requirements for female borrowers. The paper contributes to the ongoing debate on the determinants of collateral.

Keywords:

• SME finance
• collateral
• asymmetric information
• bank competition
• distance
• Visegrad countries

JEL classification:

• G21
• G32
• O16

Additional information

Notes on contributors

Ashiqur Rahman

Ashiqur RAHMAN is a PhD candidate in Finance at Tomas Bata University in Zlin, Czech Republic. Before that, he has received his Msc Finance at the University of Strathclyde, Glasgow, Scotland, UK. He has research interests in SME Finance, Corporate Governance, and Entrepreneurship.

Jaroslav Belas

Jaroslav BELAS, PhD, is Full Professor. He is a renowned expert in commercial banking and risk management of SMEs. He worked in the banking sector of Slovakia from 1993 to 2001. In academic field, he has worked at the University of Economics in Bratislava and the Pan European University in Bratislava. He is currently at Tomas Bata University in Zlin, Faculty of Management and Economics. He is an author of nine monographs; the results of the research activities have been outputted through 70 various scientific works that have been published in prestigious journals. He is a member of the Scientific Council of Pan European University in Bratislava and the Scientific Council of Georg Žilina publisher in Slovakia. Currently he manages five scientific projects.

Tomas Kliestik

Tomas KLIESTIK, PhD, is Full Professor. He is an expert in application of quantitative mathematical statistical methods in financial management of companies and methods of risk quantification and diversification. He is currently head of the Department of Economics at the Faculty of Operation and Economics of Transport and Communications, University of Zilina. He is an author of 4 monographs; results of his research activities have been published in more than 120 various scientific works from which 31 are indexed in the Web of Science database. His works have recorded more than 450 citations from which 215 are indexed in Web of Science database and his current H-index is 8. He is a member of the Scientific Council of the Faculty of Economics and Management, Slovak University of Agriculture in Nitra; Scientific Council of the Faculty of Operation and Economics of Transport and Communications, University of Zilina and Academic Board of School of Expertness and Valuation, Institute of Technology and Business in České Budějovice. Currently he manages one scientific project financed by Slovak Research and Development Agency and one scientific project financed by Scientific Grant Agency of the Ministry of Education, Science, Research and Sport of the Slovak Republic and Slovak Academy of Sciences.

Ladislav Tyll

Ladislav TYLL, PhD, is an Assistant Professor at the University of Economics, Prague – Faculty of Business Administration. His research is focused on International Strategy and Business as well as Entrepreneurship primarily in CEE region. Most of the research topics are business related and usually designed as made to order by corporate partners. Besides his academic career, he works as a business consultant.