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Publications
Publications
  • February 2021
  • Article
  • Journal of Financial Economics

A Dynamic Theory of Multiple Borrowing

By: Daniel Green and Ernest Liu
  • Format:Print
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Abstract

Multiple borrowing—a borrower obtains overlapping loans from multiple lenders—is a common phenomenon in many credit markets. We build a highly tractable, dynamic model of multiple borrowing and show that, because overlapping creditors may impose default externalities on each other, expanding financial access by introducing more lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient endeavors with low returns-to-scale. These problems are exacerbated when investments become more pledgeable or when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.

Keywords

Commitment; Multiple Borrowing; Common Agency; Misallocation; Microfinance; Investment; Mathematical Methods

Citation

Green, Daniel, and Ernest Liu. "A Dynamic Theory of Multiple Borrowing." Journal of Financial Economics 139, no. 2 (February 2021): 389–404.
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About The Author

Daniel W. Green

Finance
→More Publications

More from the Authors

    • March 2022
    • Review of Financial Studies

    Contractual Restrictions and Debt Traps

    By: Ernest Liu and Benjamin N. Roth
    • July 2021
    • Faculty Research

    Playing the Field: Competing Bids for Anadarko Petroleum Corp

    By: E. Scott Mayfield, Daniel Green and Benjamin C. Esty
    • July 2021
    • Faculty Research

    Playing the Field: Competing Bids for Anadarko Petroleum Corp.

    By: Daniel Green, E. Scott Mayfield and Benjamin C. Esty
More from the Authors
  • Contractual Restrictions and Debt Traps By: Ernest Liu and Benjamin N. Roth
  • Playing the Field: Competing Bids for Anadarko Petroleum Corp By: E. Scott Mayfield, Daniel Green and Benjamin C. Esty
  • Playing the Field: Competing Bids for Anadarko Petroleum Corp. By: Daniel Green, E. Scott Mayfield and Benjamin C. Esty
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