EconPapers    
Economics at your fingertips  
 

A Theory of Credit Ceilings in a Model of Debt and Renegotiation

John Fender and Peter Sinclair

Bulletin of Economic Research, 2000, vol. 52, issue 3, 235-56

Abstract: A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There exists a "credit ceiling" which, if binding, implies underinvestment. The paper discusses the determinants of the credit ceiling and derives some comparative statics results. For example, it is shown that the credit ceiling is raised by a mean-preserving spread of the firm's revenues. Also, a borrower may benefit from a reduction in his bargaining power. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:buecrs:v:52:y:2000:i:3:p:235-56

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0307-3378

Access Statistics for this article

More articles in Bulletin of Economic Research from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2022-09-25
Handle: RePEc:bla:buecrs:v:52:y:2000:i:3:p:235-56