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;
2007-01-01

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.
Pubblicato
Rilevanza internazionale
Articolo
Esperti anonimi
Settore SECS-P/01 - Economia Politica
English
Con Impact Factor ISI
foreign lenders, real sector, liquidation values, output 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].
Ferraris, L; Minetti, R
Articolo su rivista
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/116511
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