Theory of Bank Lending with Monitoring and Application to Rural Banking in India 2002-2003

B. Mukhopadhyay
Authors registered in the RePEc Author Service: Bappaditya Mukhopadhyay () and Bappaditya Mukhopadhyay

International Journal of Applied Econometrics and Quantitative Studies, 2005, vol. 2, issue 2, 85-100

Abstract: We present a model in Costly State Verification framework that relates capital raised in a firm to profitability. We explain how optimality of investment is affected by how the aggregate funding affects the expected outcomes of the project. Although we find underinvestment, the problem does not get severe with increasing dead weight costs.

Keywords: Strategic default; Underinvestment; CSV (search for similar items in EconPapers)
JEL-codes: G00 G29 G38 (search for similar items in EconPapers)
Date: 2005
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