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Optimal Lending Contracts with Asymmetric Information and Two-sided Limited Commitment or Impatient Entrepreneur

Shuyun May Li

No 1065, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper discusses two ways to amend the optimal lending contract under asymmetric information studied in Clementi and Hopenhayn (2006) to change its long-run implications so that firm growth and exit driven by borrowing constraints exist in the long run. One way assumes that the entrepreneur has a lower discount factor than the bank, and the other assumes the bank has limited commitment. The optimal lending contracts under each variation closely resemble each other.

Keywords: Optimal lending contract; Borrowing constraints; Asymmetric information; Limited commitment; Impatient entrepreneur (search for similar items in EconPapers)
JEL-codes: D21 G3 L2 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn, nep-cta and nep-ent
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