{'fraction_non_alphanumeric': 0.02054794520547945, 'fraction_numerical': 0.0, 'mean_word_length': 4.982456140350878, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Short-Term Collateralization : Theory and Evidence

This paper finds theoretical and empirical evidence that secured lines of credit (L/Cs) are associated with business borrowers who exhibit a high risk of default. Our stylized theoretical model discusses an optimal use of L/Cs when an entrepreneur has the ability costlessly to divert cash flow to himself and when it is prohibitively costly for a third party (such as a court) to prove diversion. However, our model differs from previous work by specifically linking moral hazard to the liquidation of short-term assets, such as accounts receivable. Specifically, the model demonstrates that the value of a secured L/C in minimizing contracting costs is associated with the business risk of the borrower and the quality of the borrower's customers. Empirical tests on a sample of publicly traded manufacturing firms offer support for the predictions of the model. We find that firms with secured L/Cs are observably riskier and have fewer expected growth opportunities.