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Optimal Lending Contracts and Firm DynamicsRui A. AlbuquerqueBoston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI) Hugo A. HopenhaynUniversity of California, Los Angeles (UCLA) - Department of Economics June 2001 Simon School of Business Working Paper No. FR 01-08 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 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, G35 working papers seriesDate posted: September 6, 2001Suggested CitationContact Information
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