We study financial contracting in a model encompassing costly state verification, risk aversion a... more We study financial contracting in a model encompassing costly state verification, risk aversion and imperfect investor protection. We characterize optimal contracts with special emphasis on repayment functions that are continuous on the firm's returns and provide a well specified condition for such contracts to take the form of standard debt. Moreover, we show that for some popular specifications of preferences, standard debt can be optimal only if investor protection is imperfect. Our comparative statics exercises demonstrate that, as long as the contract is continuous, the cost of funds and the probability of bankruptcy are decreasing in the level of investor protection, a result that can be extended to a dynamic setting. In a specific parametrization of the problem, we show that moderate changes in the level of investor protection can have substantial quantitative effects on the terms of the optimal contract and on the borrower's welfare. Finally, we study the relationship between investor protection and leverage and consider the consequences of implementing standard debt contracts when optimality conditions are not satisfied.
Coyuntura Económica, vol. 37, n o 2, segundo semestre de 2007. La responsabilidad por las opinion... more Coyuntura Económica, vol. 37, n o 2, segundo semestre de 2007. La responsabilidad por las opiniones aquí expresadas es exclusiva de los autores. Se agradece a Sergio
The economic distress caused by recent financial crashes in developing economies has increased th... more The economic distress caused by recent financial crashes in developing economies has increased the concern about the optimal exchange rate policy. Yet, empirical work addressing the links between developments in the capital account and output growth under alternative policy regimes is very limited. In the present work, I assess the performance of fixed and flexible regimes in 53 developing countries for the 1978-2000 period. In particular, I explore the potential asymmetries that may arise when developing countries face swings in the capital account under different exchange rate arrangements. I confirm previous results that associate fixed regimes with higher output volatility. Moreover, I find that capital outflows are more sensitive to the choice of regime than capital inflows and that the effects of the former are delayed one year under fixed exchange rates resulting in a bigger once-and-for-all output loss.
Revisando la evidencia sobre frenazos súbitos y crisis financieras
... REVISANDO LA EVIDENCIA SOBRE FRENAZOS SÚBITOS Y CRISIS FINANCIERAS1 CésarE. Tamayo Andrés M. ... more ... REVISANDO LA EVIDENCIA SOBRE FRENAZOS SÚBITOS Y CRISIS FINANCIERAS1 CésarE. Tamayo Andrés M. Vargas2 ... Colombia no fue ajena a estos fenómenos, de acuerdo a López y Tenjo (2003), los crecientes flujos ... U S D M ile s d e m illo n e s Equity Crédito privado ...
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