The option to wait to invest and equilibrium credit rationing

R Lensink*, E Sterken

*Corresponding author for this work

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13 Citations (Scopus)
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Abstract

Stiglitz and Weiss (1981) show that firms considering risky projects have higher reservation interest rates and hence it is optimal for a bank to reduce loan supply. In this note we show that when the risk involved in an investment will be resolved in the future, investors with riskier projects have a greater return from waiting. More risky projects have lower reservation interest rates and hence there is no motive for banks to ration credit demand.

Original languageEnglish
Pages (from-to)221-225
Number of pages5
JournalJournal of money credit and banking
Volume34
Issue number1
DOIs
Publication statusPublished - Feb-2002

Keywords

  • UNCERTAINTY

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