BOFIT Seminar - John Earle (George Mason University) - Damaged Collateral, Firm-Level Consequences, and Russia’s War in Ukraine

Co-authors: Solomiya Shpak (George Mason University and Kyiv School of Economics), Scott Gehlbach (University of Chicago), and Mariia Panga (George Mason University)


How much has Russia’s war in Ukraine damaged the collateral of Ukrainian firms, and how much damage has that caused the Ukrainian financial system? We address this question using unusually rich high-frequency supervisory data of Ukrainian banks combined with a survey of banks on the location and condition of corporate borrowers’ collateral between February and November 2022. Exploiting plausibly exogenous variation in damage to collateral, we find that a 10-percent reduction in collateral value lowers the probability of getting any new loan by nearly eight percentage points; new lending falls by over two percentage points. Our results additionally imply that the same reduction in collateral value raises default rates and banks’ assessment of firms’ probability of default by approximately eight and four percentage points, respectively. The results imply reduced investment and lower economic growth for Ukraine in the future.


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