Abstract
We develop a theory of how corporate lending and financial intermediation change based on the fundamentals of the firm and its environment. We focus on the interaction between the prospective net worth or liquidity of an industry and the firm's internal governance or pledgeability. Variations in prospective liquidity can induce changes in the nature, covenants, and quantity of loans that are made, the identity of the lender, and the extent to which the lender is leveraged. We offer predictions on how these might vary over the financial cycle.
| Original language | English |
|---|---|
| Pages (from-to) | 1275-1294 |
| Number of pages | 20 |
| Journal | Journal of Financial Economics |
| Volume | 143 |
| Issue number | 3 |
| Early online date | 18 May 2021 |
| DOIs | |
| Publication status | Published - Mar 2022 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021
Keywords
- Liquidity
- Pledgeability
- Financial cycle
- Monitoring
- Loans
- Performance-pricing debt
- Intermediary capital
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