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Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger...
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from a financial recession using a model that can account for the observed default and leverage dynamics during the … account for the observed default and leverage dynamics. Following an adverse aggregate shock, banks deleverage through two …
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quantitative model where firms make investment, financing, and default decisions subject to aggregate and idiosyncratic risk. Firms … profit opportunities and increases default risk for debtholders. Equityholders are protected against default risk due to the …
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