Art as Collateral

High market values and the recognition of its investment potential make art a potential source of collateral for loans. Recently, 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. We show that demand for art loans increases when the economy experiences a downturn and the liquidity need is high. We also 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 a substitute collateral is increasingly used when home equity loans are difficult to obtain.