The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank?s decision to liquidate bad firms has two opposing effects. First, the bank receives a payoff if a firm is liquidated. Second, it loses the...

We investigate financial intermediaries interest rate risk management as the simultaneous decision of on-balance-sheet exposure and interest rate swap use. Our findings show that both decisions are substitute risk management strategies. Hausman exogeneity tests indicate that both decisions are...

The time-continuous discrete-state Markov process is a model for rating transitions. One parameter, namely the intensity to migrate to an adjacent rating state, implies an ordinal rating to have an intuitive metric. State-specific intensities generalize the state-stationarity. Observing Markov...

Capital reallocation from unprofitable to profitable firms is a key source of productivity gain in an innovative economy. We present a model of credit reallocation and focus on the role of banks: Weakly capitalized banks hesitate to write off non-performing loans to avoid a violation of...

We analyze how regional quality affects firm’s efficiency by identifying the impaired firms receiving financial assistance as those paying an implicit interest rate lower than the prime rate. Then, we decompose them into: real impaired firms unable to repay their loans, and those not repaying...

We model credit rating histories as continuous-time discrete-state Markov processes. Infrequent monitoring of the debtors' solvency will result in erroneous observations of the rating transition times, and consequently in biased parameter estimates. We develop a score test against such...

The paper compares provision of public infrastructure via public-private partnerships (PPPs) with provision under government management. Due to soft budget constraints of government management, PPPs exert more effort and therefore have a cost advantage. At the same time, hard budget constraints...

The aim of the study is to establish insolvency forecast model with the usage of different statistical methods and compare their efficiency. Besides this the relation and direction between indebtedness and financial distress is also part of the examination. With different approaches we nearly...

This paper explores the impacts of traditional agricultural insurance that offers protection against climatic shocks on small-scale tobacco farmers in Colombia after a period of substantial crop failures. Our identi cation strategy bene ts from a natural experimental setup of the form in which...