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Optimal Lending Contracts with Long Run Borrowing Constraints

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  • Shuyun May Li

Abstract

This paper discusses two ways to amend the optimal lending contract under asymmetric information studied in Clementi and Hopenhayn (2006) to change its long-run implications so that firm growth and exit driven by borrowing constraints exist in the long run. One way assumes that the entrepreneur has a lower discount factor than the bank, and the other assumes the bank has limited commitment. The optimal lending contracts under each variation closely resemble each other.

Suggested Citation

  • Shuyun May Li, 2009. "Optimal Lending Contracts with Long Run Borrowing Constraints," Department of Economics - Working Papers Series 1084, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:1084
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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0003/801174/1084.pdf
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    References listed on IDEAS

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    Cited by:

    1. Li Shuyun May, 2010. "Employment Flows with Endogenous Financing Constraints," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-42, July.

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    More about this item

    Keywords

    Borrowing constraints; Asymmetric information; Limited commitment; Impatient entrepreneur;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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