We develop a theory of the interaction between the entry of lenders and the real sector.The high liquidation skills of incumbent lenders render them too tough in terminating high-risk/return projects. Being "foreign"to the market, newcomers have lower ability to liquidate than incumbents.This makes them softer in liquidating high-risk/return projects but renders their funding more costly.We show that the entry of lenders and the share of high-risk/return projects can reinforce each other through firms' liquidation values. This interaction dampens the output impact of liquidity shocks. Hence, financial liberalization can enhance stability.

Ferraris, L., & Minetti, R. (2007). Foreign lenders and the real sector. JOURNAL OF MONEY, CREDIT, AND BANKING, 39(4), 945-964 [10.1111/j.1538-4616.2007.00052.x].

Foreign lenders and the real sector

FERRARIS, LEO;
2007

Abstract

We develop a theory of the interaction between the entry of lenders and the real sector.The high liquidation skills of incumbent lenders render them too tough in terminating high-risk/return projects. Being "foreign"to the market, newcomers have lower ability to liquidate than incumbents.This makes them softer in liquidating high-risk/return projects but renders their funding more costly.We show that the entry of lenders and the share of high-risk/return projects can reinforce each other through firms' liquidation values. This interaction dampens the output impact of liquidity shocks. Hence, financial liberalization can enhance stability.
Si
Articolo in rivista - Articolo scientifico
Scientifica
foreign lenders; real sector; liquidation values; output stability
English
945
964
20
Ferraris, L., & Minetti, R. (2007). Foreign lenders and the real sector. JOURNAL OF MONEY, CREDIT, AND BANKING, 39(4), 945-964 [10.1111/j.1538-4616.2007.00052.x].
Ferraris, L; Minetti, R
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/311116
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