Optimal Lending Contracts and Firm Dynamics
Rui A. Albuquerque
Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Hugo A. Hopenhayn
University of California, Los Angeles (UCLA) - Department of Economics
Simon School of Business Working Paper No. FR 01-08
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 some stylized facts on the growth and survival of firms. We derive implications for the study of financing constraints and the capital structure choices of constrained firms.
Number of Pages in PDF File: 44
Keywords: Financial constraints, imperfect enforcement, firm dynamics, capital structure, debt maturity.
JEL Classification: D92, F34, G31, G32, G35working papers series
Date posted: September 6, 2001
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