"We examine how collateral affects the cost of debt capital. Theories based on borrower moral hazard and limited … pledgeable income predict that collateral increases the availability of credit and reduces its price. Testing these theories is … complicated by the very selection problem which they imply: creditors will demand collateral precisely from those borrowers who …

"Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral … channel in which a firm's bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of … external debt finance industry wide. To identify this collateral channel, we use a novel dataset of secured debt tranches …