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Weak creditor rights introduce contracting frictions and magnify conflicts of interest between borrowers and creditors. We examine the effects of creditor rights on the sensitivity of bank lending terms to aggregate relative to firm-specific information. We formulate two competing hypotheses. On...
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time a borrower and a lender. When some counterparties of an agent default, the loss she experiences amounts to her total … mechanisms of loss amplifications such as in the presence of potential runs among the short-term lenders of the agents in the …
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