We consider a competitive bank loan market model where the marginal costs of managing and monitoring loans are assumed to increase as borrowers' net worth decreases. We show that the responsiveness of equilibrium bank loan rates to changes in interbank money market rates become weaker as borrowers' net worth decreases. In other words, monetary policy becomes less e ective as borrowers' net wort...

This paper conducts a theoretical and quantitative analysis of how entrepreneurs choose firm size, capital structure, default, and owner consumption to manage firm risk, including how these choices change with risk aversion. We decompose an entrepreneur’s default decision into three elements: the fraction of firm debt; the potential reduction in personal consumption from losing the firm; and th...

nowadays one of the most important energy sources is natural gas. by depletion of oil reservoirs in the world, natural gasâ will emerge as the future energy source for human life. one of the major concerns of gas suppliers is being able to supply this source of energy the entire year. this concern intensifies during more consuming seasons of the year when the demand for natural gas increases, r...

We study the optimal behaviour of a firm whose cash holdings are determined by a diffusion process and which is faced with the threat of liquidation if internal cash balances fall below some threshold. There is a conflict between the desire to pay out cash as dividends to satisfy relatively impatient shareholders and the need to retain cash as a barrier against possible liquidation (and consequ...

As mentioned in Section 2.1.2, other types of financial covenants have two main forms. One type specifies an upper bound on book leverage, or analogously a lower bound on book equity (book net worth). As book equity is closely related to the accumulation of past earnings, this can be broadly viewed as a variant of EBCs. The popularity of this type of covenant has declined in the past twenty yea...

Tobin reasoned that firms should accumulate more capital when Q > 1 and should draw down their capital stock when Q < 1. That is, net investment in physical capital should depend on where Q is in relation to one. How would one measure Q in the data? Typically this is done by using the value of the stock market in the numerator and data on corporate net worth in the denominator – here net worth ...

OBJECTIVE To investigate the impact of smoking on the wealth of US young baby boomers. METHODOLOGY The research analyses self reported responses of both smoking habits and wealth holdings from a nationally representative sample of US individuals born between 1957 to 1964 (n = 8908). Data are from four waves (1984, 1992, 1994, 1998) of the National Longitudinal Survey of Youth 1979 cohort, a r...