Showing 1 - 10 of 19
We analyze how entrepreneurial firms choose between two funding institution: banks, which monitor less intensively and face liquidity demands from their own investors, and venture capitalists, who can monitor more intensively but face a higher cost of capital because of the liquidity constraints...
Persistent link: https://www.econbiz.de/10005477944
This paper characterizes when joint financing of two projects through debt increases expected default costs, contrary to conventional wisdom. Separate financing dominates joint financing when risk-contamination losses--that are associated with the contagious default of a well-performing project...
Persistent link: https://www.econbiz.de/10010969762
A financial institution that finances and monitors firms learns private information about these firms. When the institution seeks funds to meet its own liquidity needs, it faces adverse selection ("liquidity") costs that increase with the risk of its claims on these firms. The institution can...
Persistent link: https://www.econbiz.de/10005577971
We show that exposure from past business transactions risk overhang can reduce activity in related business lines, sometimes to the point where no new trade occurs. Our primary focus is the nonlife-insurance market, where our model predicts that the relative impact, duration, and character of...
Persistent link: https://www.econbiz.de/10005728119
Many financial claims specify fixed maximum payments, varying seniority, and absolute priority for more senior investors. These features are motivated in a model where a firm's manager contracts with several investors and firm output can only be verified privately at a cost. Debt-like contracts...
Persistent link: https://www.econbiz.de/10005743915
We study whether the socially optimal level of stability of the banking system can be implemented with regulatory capital requirements in a multi-period general equilibrium model of banking. We show that: (i) bank capital is costly because of the unique liquidity services provided by demand...
Persistent link: https://www.econbiz.de/10005829259
The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. In contrast, in...
Persistent link: https://www.econbiz.de/10005710708
This paper models the optimal choice of shareholder liability. If investors want managers to be monitored, the monitors should be residual claimants (shareholders), and monitoring and firm value will increase as shareholders commit more of their wealth to the firm. When liquidating wealth is...
Persistent link: https://www.econbiz.de/10005214490
The savings/investment process in capitalist economies is organized around bank-like financial intermediaries ("banks[equal, rising dots]), making them a central institution of economic growth. These intermediaries borrow from consumer/savers and lend to companies that need resources for...
Persistent link: https://www.econbiz.de/10005221091
Persistent link: https://www.econbiz.de/10005154184