Essays on credit rationing using contingent claims analysis
Essays on credit rationing using contingent claims analysis
This thesis uses analytical tools from the corporate finance literature - namely contingent claims analysis - to examine some causes, implications and solutions of the credit rationing phenomenon. Chapter 2 briefly surveys this approach. There, it is argued that one of the main advantages of utilising this methodology is that it accounts explicitly for the real world observed feature of limited liability of agents.
Chapter 3 demonstrates that with limited liability modelled in this way, information based credit rationing by loan size results as a consequence of different perceptions of risk behaviour, as well as divergent expectations of default, among lenders and borrowers.
In Chapter 4 information rationing by exclusion is shown to be possible in this framework only if collateral is an asset outside the firm. Along with interest rates and ouside collateral, leverage of the investment and maturity of the loan are also shown to have adverse selection and incentive effects.
In Chapters 5 and 6, respectively, the impact of loan policy on capital accumulation and portfolio choice is analysed. The effect on investment is shown to depend on the possibility and nature of the default probability function. The influence of loan policy on portfolio allocation depends on the nature of the borrowing constraints and on the form of the information existing between lenders and borrowers.
Chapter 7 explains the usefulness of loan sales in both unit and universal banks as a way of mitigating the credit rationing problem. It is shown that loan sales with recourse can increase a bank's incentive to invest in projects which have net positive present value and this role may be enhanced when there are information asymmetries and bank regulations.
University of Southampton
Craigwell, Roland Clairmonte
1993
Craigwell, Roland Clairmonte
Craigwell, Roland Clairmonte
(1993)
Essays on credit rationing using contingent claims analysis.
University of Southampton, Doctoral Thesis.
Record type:
Thesis
(Doctoral)
Abstract
This thesis uses analytical tools from the corporate finance literature - namely contingent claims analysis - to examine some causes, implications and solutions of the credit rationing phenomenon. Chapter 2 briefly surveys this approach. There, it is argued that one of the main advantages of utilising this methodology is that it accounts explicitly for the real world observed feature of limited liability of agents.
Chapter 3 demonstrates that with limited liability modelled in this way, information based credit rationing by loan size results as a consequence of different perceptions of risk behaviour, as well as divergent expectations of default, among lenders and borrowers.
In Chapter 4 information rationing by exclusion is shown to be possible in this framework only if collateral is an asset outside the firm. Along with interest rates and ouside collateral, leverage of the investment and maturity of the loan are also shown to have adverse selection and incentive effects.
In Chapters 5 and 6, respectively, the impact of loan policy on capital accumulation and portfolio choice is analysed. The effect on investment is shown to depend on the possibility and nature of the default probability function. The influence of loan policy on portfolio allocation depends on the nature of the borrowing constraints and on the form of the information existing between lenders and borrowers.
Chapter 7 explains the usefulness of loan sales in both unit and universal banks as a way of mitigating the credit rationing problem. It is shown that loan sales with recourse can increase a bank's incentive to invest in projects which have net positive present value and this role may be enhanced when there are information asymmetries and bank regulations.
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Published date: 1993
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Local EPrints ID: 462522
URI: http://eprints.soton.ac.uk/id/eprint/462522
PURE UUID: 192b07da-009a-4463-af60-268f6015c3a5
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Date deposited: 04 Jul 2022 19:12
Last modified: 04 Jul 2022 19:12
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Author:
Roland Clairmonte Craigwell
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