IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v167y2025ics0304405x25000339.html
   My bibliography  Save this article

Intermediary financing without commitment

Author

Listed:
  • Hu, Yunzhi
  • Varas, Felipe

Abstract

Intermediaries reduce agency problems through monitoring, but credible monitoring requires sufficient retention until the loan matures. We study credit markets when intermediaries cannot commit to retention. Two structures are examined: investors lending alongside an all-equity bank and investors lending through the bank via short-term debt. With a commitment to retention, they are equivalent. Without commitment, the all-equity bank sells loans and reduces monitoring over time. Short-term debt encourages the intermediary to retain loans and incentivizes monitoring. Our analysis provides a novel mechanism for intermediaries’ reliance on short-term debt—the constant repricing of debt creates incentives that resolve the commitment problem in loan retention and monitoring.

Suggested Citation

  • Hu, Yunzhi & Varas, Felipe, 2025. "Intermediary financing without commitment," Journal of Financial Economics, Elsevier, vol. 167(C).
    • Handle: RePEc:eee:jfinec:v:167:y:2025:i:c:s0304405x25000339
    DOI: 10.1016/j.jfineco.2025.104025
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X25000339
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2025.104025?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:167:y:2025:i:c:s0304405x25000339. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.