We use a variant of the Hotelling (1929) model to illustrate that, when a firm faces hard payment constraint(s), financially strong rivals may adopt predatory strategies to drive the firm out of the product market and hence to obtain extra profit from enhanced market power later on. Predation is...

The current crisis causes numerous economic uncertainties, such as a break-up of the European currency union, and a Greek exit from the euro area to boost the competitiveness by means of devaluation of national currency. When a factor such as exchange rate is expected to have a significant...

As shown in the recent BCBS papers market and credit risks could reinforce each other in certain circumstances, meaning the sum of the parts might be less than an estimate of risk that takes into account the interactions between the two. Market risk factors have an ambiguous impact on the firms'...

This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has...

Internationally active firms rely intensively on trade credits even though they are considered particularly expensive. This phenomenon has been little explored so far. Our theoretical analysis shows that trade credits can alleviate financial constraints arising from asymmetric information...

Using Dutch data we empirically investigate how financing and innovation vary across firm characteristics. We find that when firms face financial constraints, debt financing and innovation choices are not independent of firm characteristics, and R&D slows down. In the absence of financial...

This paper studies the interaction between financially constrained and financially strong firms on a procurement market. It characterizes and discusses a procurement agency’s optimal response when faced with financially asymmetric firms. By considering a dynamic setting, both present and...