War, Collateral Damage, And Firm-Level Consequences

How much has the war in Ukraine damaged the collateral of Ukrainian firms, and how much collateral 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. Using an instrumental variables approach, we find that the war damages collateral, and the reduced value of collateral lowers firms’ ability to borrow and raises firm defaults. The results imply reduced investment and lower economic growth for Ukraine in the future.