We study a change in the Swedish law that exogenously reduced the value of all outstanding company mortgages, i.e., a type of collateral that is comparable to the floating lien. We explore this natural experiment to identify how collateral determines borrower quality, loan terms, access to...

Collateral is one of the most important features of a debt contract. A substantial theoretical literature motivates the use of collateral as a means to alleviate ex-ante and ex-post information asymmetries between borrowers and lenders and the incidence of credit rationing. Through its seniority...