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Agency Theory Approach to the Contracting between Lender and Borrower

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  • Karel Janda

Abstract

The paper provides an overview of several selected topics dealing with application of agency theory to the credit contracts. The costly state verification and costly punishment models of optimal debt contracts are introduced and compared with respect to their performance in the situation characterized by risk aversion. Adverse selection in credit markets and its solution with a menu of screening contracts is described and the use of collateral as a screening instrument is discussed. The dynamic relationship between the lender and borrower is introduced in a soft budget constraint model of default and bankruptcy decisions. Alternative assumptions about informational asymmetries in credit markets are presented as well. For all these topics a number of references from Czech and iternational economic literature is provided.

Suggested Citation

  • Karel Janda, 2006. "Agency Theory Approach to the Contracting between Lender and Borrower," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2006(3), pages 34-47.
  • Handle: RePEc:prg:jnlaop:v:2006:y:2006:i:3:id:84:p:34-47
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    Citations

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    Cited by:

    1. Karel Janda & Jakub Rojcek, 2012. "Bankruptcy Triggering Asset Value - Continuous Time Finance Approach," ANU Working Papers in Economics and Econometrics 2012-581, Australian National University, College of Business and Economics, School of Economics.
    2. Karel Janda & Eva Michalíková & Jiøí Skuhrovec, 2012. "Credit Support for Export: Econometric Evidence from the Czech Republic," Working Papers IES 2012/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2012.
    3. Petr Marek, 2007. "Agency theory and Its Impact on Corporate Finance Theory," Český finanční a účetní časopis, University of Economics, Prague, vol. 2007(2), pages 6-16.
    4. repec:gam:jsusta:v:9:y:2017:i:12:p:2293-:d:122333 is not listed on IDEAS

    More about this item

    Keywords

    Credit; moral hazard; adverse selection; principal; agent; contracts;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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