Liquidation Values, Claim Priority, and Productivity

Abstract

We investigate the link between liquidation values, claim priority,and productivity using a large matched firm-loan dataset for the US.Loans in sectors with higher liquidation values are less likely to becollateralized or monitored and have better terms, consistent with amodel of claim priority as a contracting device. Exploiting the liftingof bank branching restrictions as a natural experiment, we find thatcollateral has become more important with deregulation. This has potentialmacroeconomic implications: liquidation values are negativelycorrelated with R&D intensity and productivity growth, pointing tofrictions in the allocation of capital even in normal times.JEL: G21, G32Keywords: Liquidation values, asset redeployability, financial contracting,seniority, collateral, bank branching regulation, productivity.Indexing