Access to Collateral and the Democratization of Credit: France's Reform of the Napoleonic Security Code

Abstract

France's Ordonnance 2006-346 repudiated the notion of possessory ownership in the Napoleonic Code, easing the pledge of physical assets in a country where credit was highly concentrated. Using a differences-test strategy, we show that firms operating newly-pledgeable assets significantly increased their borrowing following the reform.Small, young, and financially constrained businesses benefitted the most, observing improved credit access and real-side outcomes. Start-ups operating newly-pledgeable assets emerged with higher "at-inception" leverage, located farther from large cities, with more assets-in-place than before. Their exit and bankruptcy rates declined. Spatial analyses show that the reform reached firms in rural areas, reducing credit access inequality across France's countryside.

The Financing of Investment: Firm Size, Asset Tangibility and the Size of Investment

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