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The Financing and Redeployment of Specific Assets

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Author Info

  • Michel A. Habib

    (London Business School,)

  • D. Bruce Johnsen

    (George Mason University School of Law)

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    Abstract

    We model the role various forms of nonrecourse secured debt play in efficiently redeploying assets whose value is state-specific. Ex ante, an entrepreneur and an asset redeployer make noncontractible state-specific investments in the primary and next-best uses of an asset, respectively. The redeployer provides a secured nonrecourse loan equal to the value of the asset in the critical state that separates the good and bad states. In the event of a bad state, this contract averts ex post bargaining over the asset's quasi-rents on redeployment and leaves the parties' ex ante investments undistorted. Copyright The American Finance Association 1999.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 54 (1999)
    Issue (Month): 2 (04)
    Pages: 693-720

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    Handle: RePEc:bla:jfinan:v:54:y:1999:i:2:p:693-720

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    Cited by:
    1. Marin, Dalia & Schnitzer, Monika, 2006. "When is FDI a Capital Flow?," Discussion Papers in Economics 1158, University of Munich, Department of Economics.
    2. Herrera, Ana María & Minetti, Raoul, 2007. "Informed finance and technological change: Evidence from credit relationships," Journal of Financial Economics, Elsevier, vol. 83(1), pages 223-269, January.
    3. Luigi Guiso & Raoul Minetti, 2007. "The Structure of Multiple Credit Relationships: Evidence from US Firms," Economics Working Papers ECO2007/46, European University Institute.
    4. Guiso, Luigi & Minetti, Raoul, 2004. "Multiple Creditors and Information Rights: Theory and Evidence from US Firms," CEPR Discussion Papers 4278, C.E.P.R. Discussion Papers.
    5. Marco Sorge & Blaise Gadanecz, 2008. "The term structure of credit spreads in project finance Supplementary material for this article can be found at http:||www.interscience.wiley.com|jpages|1076-9307|suppmat|ijfe.350.html," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 68-81.
    6. Hainz, Christa & Kleimeier, Stefanie, 2006. "Project Finance as a Risk-Management Tool in International Syndicated Lending," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 183, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    7. Gavazza, Alessandro, 2010. "Asset liquidity and financial contracts: Evidence from aircraft leases," Journal of Financial Economics, Elsevier, vol. 95(1), pages 62-84, January.
    8. Golbeck, Steven & Linetsky, Vadim, 2013. "Asset financing with credit risk," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 43-59.
    9. Jean-Étienne Palard, 2007. "Recentrage stratégique et politique de financement:le cas des firmes cotées en Europe (1987-2003)," Revue Finance Contrôle Stratégie, revues.org, vol. 10(3), pages 111-137, September.
    10. Kleimeier,Stefanie & William L. Megginson, 2002. "An empirical analysis of limited recourse project," Research Memorandum 066, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    11. Francesco Corielli & Stefano Gatti & Alessandro Steffanoni, 2010. "Risk Shifting through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1295-1320, October.

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