The incentive effects of the overlapping project structure in credit markets

J.-P. Niinimäki

Journal of Economics and Business, 2024, vol. 128, issue C, No S0148619524000018

Abstract: In this theoretical paper, we examine the risk-shifting problem between lenders and a firm running projects in two different environments. In a synchronous environment, the firm introduces two new 2-period projects that both begin and end on the same date and hence have a new start date in odd-numbered periods. In an asynchronous environment, the firm introduces one new 2-period project in every period: This process creates an overlapping structure for the projects. We show that the set of parameters that allow for reputation-supported lending is larger if projects are asynchronous rather than synchronous. The findings can be generalized to other forms of moral hazard.

Keywords: Credit rationing; Dynamic moral hazard; Staged financing; Reputation; Risk-shifting (search for similar items in EconPapers)
JEL-codes: D82 G14 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:128:y:2024:i:c:s0148619524000018

DOI: 10.1016/j.jeconbus.2024.106159

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