The Importance of Being Consulted

Alessandro Fedele and Andrea Mantovani

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Does management consulting facilitate the access to credit for start-ups? This paper tries to answer the question by developing a theoretical framework where a firm applies for a bank loan to implement a risky project. The probability of success increases if the firm exerts a costly managerial extra-effort, but the bank is unable to observe such an effort: a moral hazard problem may therefore occur. During an economic downturn the project s expected profitability is likely to be low relatively to the effort cost. In this case we find that credit is granted only if the bank hires a management consultant, even when the latter does not improve the business practice.

JEL-codes: D82 M11 M13 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-ban, nep-cta and nep-ppm
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Related works:
Journal Article: The Importance of Being Consulted (2010)
Working Paper: The importance of being consulted (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:712

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