Credit rationing and asset value
AbstractThis paper investigates the effect of real assets as collateral on the economy. I show how credit rationing is mitigated by the exsistence of bad firms whether it is linked to the value of distressed assets. Indeed, when loans are collateralized and firms are credit constrained, the amount borrowed is determined by the value of the collateral. The model builds on Stiglitz and Weiss (1981) and Shleifer and Vishny (1992) to show that there exists a link between firms’ debt capacities and asset values in case of distress and the classical credit rationing model. Such as in the paper of Shleifer and Vishny, I endogenize the assets price. The price depends on whether there are firms that repurchase the assets. In fact, it depends on the number of bad firms in the economy as well as on the liquidity of good firms. I show that is possible to have a separating equilibrium only if there exists a number of bad firms that go bankrupt and if there exist good firms with sufficient liquidity. Each firm derives positive externalities from the existence of other firms. Indeed, the optimal leverage of firms depends on the possibility of repurchasing the assets. In this model the financial intermediaries play a role because they arise as internal markets for assets.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" 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.
Bibliographic InfoPaper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2006-EP04.
Length: 26 pages
Date of creation: 2006
Date of revision:
Adverse selection; credit rationing; real assets; asymmetric information; public subsidies;
Other versions of this item:
- Antonio Affuso, 2007. "Credit Rationing and Asset Value," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1065, Universitá degli Studi di Milano.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-09 (All new papers)
- NEP-CFN-2006-12-09 (Corporate Finance)
- NEP-PBE-2006-12-09 (Public Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- A. Affuso, 2007. "Credit rationing and real assets: evidence from Italian panel data," Economics Department Working Papers 2007-EP09, Department of Economics, Parma University (Italy).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Andrea Lasagni).
If references are entirely missing, you can add them using this form.