The second essay, on the other hand, studies dynamic optimal financial contracts under asymmetric information and aggregate shock. The model in this essay studies firm dynamics under credit constraints and changes in interest rate. In the model, young, newly-created, intermediate and mature firms coexist and are affected differently by interest rate shocks. An increase in interest rate tightens the credit constraints, reducing (i) the survival probability of newly created, young and small firms who are credit constrained, (ii) the scale of production of intermediate and unconstrained firms, and (iii) the number of entries of potential firms.Assume that at date 0, an investment project which needs a fixed cost K is available to the entrepreneur. The entrepreneur has no capital to invest in the project so he needs to raise funding from outside investors. The entrepreneur has aanbsp;...
|Title||:||Essays in Financial Economics|
|Publisher||:||ProQuest - 2008|