IDEAS home Printed from https://ideas.repec.org/a/bla/buecrs/v52y2000i3p235-56.html
   My bibliography  Save this article

A Theory of Credit Ceilings in a Model of Debt and Renegotiation

Author

Listed:
  • Fender, John
  • Sinclair, Peter

Abstract

A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There exists a "credit ceiling" which, if binding, implies underinvestment. The paper discusses the determinants of the credit ceiling and derives some comparative statics results. For example, it is shown that the credit ceiling is raised by a mean-preserving spread of the firm's revenues. Also, a borrower may benefit from a reduction in his bargaining power. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Fender, John & Sinclair, Peter, 2000. "A Theory of Credit Ceilings in a Model of Debt and Renegotiation," Bulletin of Economic Research, Wiley Blackwell, vol. 52(3), pages 235-256, July.
    • Handle: RePEc:bla:buecrs:v:52:y:2000:i:3:p:235-56
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Peter Sinclair, 2011. "Deficits, Debts and Defaults - Past, Present and Future," Discussion Papers 11-20, Department of Economics, University of Birmingham.
    2. Liu, Wei & Spanjers, Willem, 2005. "Social capital and credit constraints in informal finance," Economics Discussion Papers 2005-5, School of Economics, Kingston University London.
    3. John Fender & Peter Sinclair, 2006. "On Risk Aversion and Investment: A Theoretical Approach," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 601-626, December.
    4. Naranchimeg Mijid & Caroline Elliott, 2015. "Gender differences in Type 1 credit rationing of small businesses in the US," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1021553-102, December.

    More about this item

    Statistics

    Access and download statistics

    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:bla:buecrs:v:52:y:2000:i:3:p:235-56. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378 .

    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.