The Importance of Being Consulted

Alessandro Fedele and Andrea Mantovani

Annals of Economics and Finance, 2010, vol. 11, issue 2, 231-245

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.

Keywords: Management consultancy; Moral hazard; Bank credit; Economic downturn (search for similar items in EconPapers)
JEL-codes: D82 M11 M13 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://aeconf.com/Articles/Nov2010/aef110202.pdf (application/pdf)
http://down.aefweb.net/AefArticles/aef110202.pdf (application/pdf)

Related works:
Working Paper: The Importance of Being Consulted (2010)
Working Paper: The importance of being consulted (2010)
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:cuf:journl:y:2010:v:11:i:2:p:231-245

Access Statistics for this article

Annals of Economics and Finance is currently edited by Heng-fu Zou

More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao ().