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Is there a paradox of pledgeability?
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Bernhardt, Dan, Koufopoulos , Kostas and Trigilia, Giulio (2020) Is there a paradox of pledgeability? Journal of Financial Economics, 137 (3). pp. 606-611. doi:10.1016/j.jfineco.2020.05.003 ISSN 0304-405X.
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Official URL: https://doi.org/10.1016/j.jfineco.2020.05.003
Abstract
We show that in the limited-commitment framework of Donaldson, Gromb, and Piacentino (2019), firm value always increases in the fraction of cash flows that can be pledged as collateral. That is, pledgeability increases investment efficiency and relaxes a firm’s financing constraint. We derive this conclusion using the same contracts considered by the authors and generalize the result to an arbitrary number of states. We also show that the first best can always be implemented by a nonstate-contingent secured debt contract, which differs from the ones they consider.
| Item Type: | Journal Article | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Economics | ||||||||
| Library of Congress Subject Headings (LCSH): | Collateralized debt obligations, Debt, Cash flow, Business enterprises -- Finance | ||||||||
| Journal or Publication Title: | Journal of Financial Economics | ||||||||
| Publisher: | Elsevier Science BV | ||||||||
| ISSN: | 0304-405X | ||||||||
| Official Date: | September 2020 | ||||||||
| Dates: |
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| Volume: | 137 | ||||||||
| Number: | 3 | ||||||||
| Page Range: | pp. 606-611 | ||||||||
| DOI: | 10.1016/j.jfineco.2020.05.003 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 24 April 2020 | ||||||||
| Date of first compliant Open Access: | 15 November 2021 | ||||||||
| Related URLs: |
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