Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity∗

Recent reforms across Eastern European countries gave more flexibility and information for parties to engage in secured debt transactions, reducing court involvement. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more, invested more, hired more, and became more efficient and profitable following those changes in the contracting environment. The reforms also democratized access to credit, with more firms abandoning their prior zero-leverage status. This financial deepening triggered important reallocation effects: Firms affected by the reform increased their share of capital stock and employment in the economy. JEL Classification Numbers: G32, K22, O16.