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Optimal Dynamic Lending Contracts with Imperfect Enforceability
Rui A. Albuquerque Boston University - School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) Hugo A. Hopenhayn University of California, Los Angeles (UCLA) - Department of Economics December 17, 2000 AFA 2001 New Orleans Meetings; Rochester Ctr for Economic Research Paper No. 439; and Simon School of Business Working Paper FR 00-10 Abstract: We develop a general dynamic model in which borrowing constraints arise endogenously as part of a constrained- efficient contract when borrowers face limited liability and debt repayment cannot be perfectly enforced. The model is qualitatively consistent with the some stylized facts on the growth and survival, and on the dividend and capital structure policies of firms. We derive new implications for the study of financing constraints and the behavior of small versus large firms.
Keywords: Financial constraints, imperfect enforcement, long term debt, capital structure, firm dynamics. JEL Classifications: D92, F34, G31, G32, G35 Working Paper SeriesDate posted: September 14, 1998 ; Last revised: October 27, 2008Suggested CitationContact Information
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