The main objective of this paper is to investigate the determinants of collateral requirements on loans that are extended to small and medium enterprises (SMEs) in less-developed countries. Our primary data source is the Business Environment and Enterprise Performance Survey (BEEPS) results from Eastern European and Central Asian countries. We observe that country-specific variables are more important than firm-specific variables for determining both the presence of collateral in loan contracts and the collateral to loan value ratios of these contracts. The strongest evidence in our paper addresses the important role that information sharing among lenders plays in the reduction of collateral requirements. JEL classification codes: G21, G32, O16

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A domestic credit insurance contract is a policy that covers the risk of the nonpayment of future commercial credit as a result of the failure to pay within the agreed terms and conditions (protracted default) or the insolvency of the buyer. To evaluate the effective level of financial protection offered by trade credit policies, we collected a database of contracts issued between 2006 and 2013 by a number of Italian insurance companies, which account for 80-85% of the Italian market. We find that, to be considered as able to mitigate credit risk, the policies must have their contract clauses changed. In that case, such a policy, if accepted by the supervisory authority, could permit banks to reduce the capital requirement connected with the discount of trade credits. These results are particularly important for insurance companies.

This study examines the use and determinants of covenants in public debt issued by Russian companies. Based on issue characteristics and firm characteristics, we investigate the likelihood that the inclusion of covenant clauses in financial contracts is positively related to the riskiness of bond issues. Using a hand-collected database of Russian firms that place bonds in both the domestic and Eurobond markets, we provide evidence that Russian bondholders use covenant protection to compensate for different creditor protections when the firm has Eurobonds in its debt portfolio. We also find a general negative relation between covenant protection and the bond's yield.