Theory of Bank Lending with Monitoring and Application to Rural Banking in India 2002-2003

We present a model in Costly State Verification framework that relates capital raised in a firm to profitability. We explain how optimality of investment is affected by how the aggregate funding affects the expected outcomes of the project. Although we find underinvestment, the problem does not get severe with increasing dead weight costs.

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Year of publication:	2005
Authors:	Mukhopadhyay, B.
Published in:	International Journal of Applied Econometrics and Quantitative Studies. - Euro-American Association of Economic Development. - Vol. 2.2005, 2, p. 85-100
Publisher:	Euro-American Association of Economic Development
Subject:	Strategic default \| Underinvestment \| CSV

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Type of publication:	Article
Language:	English
Classification:	G00 - Financial Economics. General ; G29 - Financial Institutions and Services. Other ; G38 - Government Policy and Regulation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005243503