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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26139
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| Title: | A Theory of Financing Constraints and Firm Dynamics |
| Authors: | Clementi, Gian Luca
Hopenhagn, Hugo |
| Keywords: | Optimal Contract
Borrowing Constraints
Moral Hazard
Survival |
| Issue Date: | May-2002 |
| Series/Report no.: | EC-04-25 |
| Abstract: | There is widespread evidence supporting the conjecture that borrowing
constraints have important implications for firm growth and survival. In
this paper we model a multi-period borrowing/lending relationship with
asymmetric information. We show that borrowing constraints emerge as a
feature of the optimal long-term lending contract, and that such
constraints relax as the value of the borrower’s claim to future
cash flows increases. We also show that the optimal contract has
interesting implications for firm dynamics. In agreement with the
empirical evidence, as age and size increase, mean and variance of
growth decrease, firm survival increases, and the sensitivity of
investment to cash-flows declines. |
| URI: | http://hdl.handle.net/2451/26139 |
| Appears in Collections: | Economics Working Papers
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