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Firm Heterogeneity, Internal Finance, and 'Credit Rationing.'

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  • Calomiris, Charles W
  • Hubbard, R Glenn

Abstract

This paper assesses the role of internal net worth (holding constant investment opportunities) in the allocation of credit in the presence of asymmetric information in the capital market. The authors consider an economy in which both "symmetric-information" and "information-intensive" entrepreneurs seek funds from the capital market, and they develop a simple general equilibrium model of credit allocation. Their emphasis is on shocks to borrower net worth. Depending on levels of net worth, the symmetric-information allocation, a "credit collapse," or intermediate allocations are possible. The model yields predictions corresponding to accelerator effects on investment and output, as well as real effects of collateral redistributions. Copyright 1990 by Royal Economic Society.

Suggested Citation

  • Calomiris, Charles W & Hubbard, R Glenn, 1990. "Firm Heterogeneity, Internal Finance, and 'Credit Rationing.'," Economic Journal, Royal Economic Society, vol. 100(399), pages 90-104, March.
  • Handle: RePEc:ecj:econjl:v:100:y:1990:i:399:p:90-104
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    References listed on IDEAS

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    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. R. Glenn Hubbard & Kenneth L. Judd, 1986. "Liquidity Constraints, Fiscal Policy, and Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 1-60.
    6. Ben Bernanke & Mark Gertler, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 87-114.
    7. Otto Eckstein & Allen Sinai, 1986. "The Mechanisms of the Business Cycle in the Postwar Era," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 39-122, National Bureau of Economic Research, Inc.
    8. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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    13. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
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