Credit line pricing under heterogeneous risk beliefs
Volume: 243, Pages: 108345 - 108345
Published: Jan 1, 2022
Abstract
We develop a model of a firm with multistage investment options and a bank providing a commitment for financing using a credit line. We analyze differences in beliefs between equity holders and the bank about the risk of assets and show that unfavourable beliefs by the bank reduce credit line capacity and lead to underinvestment. Constraints on alternative sources of financing cause firms to heavily rely on bank credit lines even when facing...
Paper Details
Title
Credit line pricing under heterogeneous risk beliefs
Published Date
Jan 1, 2022
Volume
243
Pages
108345 - 108345
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