Art As Collateral

High market values and the recognition of its investment potential have made art a source of collateral for loans. Firms specializing in art lending have emerged to serve this market. This study explores the effect of regional variations in economic and financial conditions on art-backed lending activities. The authors show that demand for art loans increases when the economy experiences a downturn and liquidity needs are high. They compare the demand for art-secured loans with home equity loans and test a pecking order theory for the borrowing of high-net-worth individuals. The findings suggest that art as substitute collateral is increasingly used when home equity loans are difficult to obtain.