Optimal Dynamic Lending Contracts with Imperfect Enforceability

Albuquerque, Rui A.; Hopenhayn, Hugo A.

doi:10.2139/ssrn.125468

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Optimal Dynamic Lending Contracts with Imperfect Enforceability

AFA 2001 New Orleans Meetings; Rochester Ctr for Economic Research Paper No. 439; and Simon School of Business Working Paper FR 00-10

45 Pages Posted: 14 Sep 1998

See all articles by Rui A. Albuquerque

Rui A. Albuquerque

Boston College, Carroll 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

Date Written: December 17, 2000

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 Classification: D92, F34, G31, G32, G35

Suggested Citation: Suggested Citation

Albuquerque, Rui A. and Hopenhayn, Hugo A., Optimal Dynamic Lending Contracts with Imperfect Enforceability (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, Available at SSRN: https://ssrn.com/abstract=125468 or http://dx.doi.org/10.2139/ssrn.125468