Industry equilibrium with outside #nancing and moral hazard: Implications for market integration
نویسنده
چکیده
In this paper, we study industry equilibrium under the assumptions that (1) #rms need outside #nancing and (2) they have a moral hazard problem in taking potentially excessive risks. We characterize an industry equilibrium with credit rationing, where #rms choose not to take risks, and compare this to the industry equilibrium in the absence of credit rationing. In both cases, we show that competition increases and prices decline as markets integrate. However, in markets with credit rationing there is typically more exit, a smaller decline in prices and, most strikingly, the market value of the industry increases rather than decreases. c © 2003 Elsevier B.V. All rights reserved. JEL classi cation: L11; L13; G39
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Industry Equilibrium with Outside Financing and Moral Hazard: Effects of Market Integration
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