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Annual Review of Financial Economics

Volume 16, 2024

The Benefits and Costs of Secured Debt

Abstract

Secured debt—a debt contract that offers security to creditors in the form of collateralized assets—has been a cornerstone of credit markets in most societies since antiquity. The ability to seize and sell collateral reduces the creditor's expected losses when the debtor defaults on a promised payment. Moreover, when a firm borrows from multiple creditors with different seniorities, debt secured by assets has higher priority relative to other creditors and is first in line for payment if the firm is bankrupt. While the benefits of secured debt have been shown in both the theoretical and empirical literature, less is known about the costs associated with secured borrowing. This article surveys the burgeoning empirical literature on secured debt and provides an assessment of the costs and benefits of secured debt.

Keyword(s): collateral, credit markets, JEL G01, JEL G23, JEL G32, JEL G33, secured debt
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/content/journals/10.1146/annurev-financial-082123-105311
2024-11-01
2024-12-09
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/content/journals/10.1146/annurev-financial-082123-105311
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The Benefits and Costs of Secured Debt
Annual Review of Financial Economics 16, 325 (2024); https://doi.org/10.1146/annurev-financial-082123-105311
/content/journals/10.1146/annurev-financial-082123-105311
/content/journals/10.1146/annurev-financial-082123-105311
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