With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Department of Finance Lunch Seminar – Victoria Vanasco, Barcelona School of Economics
“The value of undrawn credit lines”
Speaker: Victoria Vanasco
Barcelona School of Economics
DATE: Friday, 6 October 2023
TIME: 12.15 – 13.30
Abstract:
We develop a model that suggests a heretofore unexplored role of credit lines: To mitigate debt dilution. The results give a new perspective on the literature on leverage ratchet effects, suggesting they can be curbed by credit lines, which act as latent contracts, suggesting collusive outcomes are unlikely to arise in dynamic environments. The model explains numerous facts, including why credit lines are pervasive but rarely drawn down and why they are bundled with loans, especially for riskier borrowers. We find that the risk of credit line revocation increases borrower leverage and riskiness, suggesting that limited lender commitment can contribute to corporate distress.
The seminar will be held in-person.
Venue:
University of Luxembourg
Kirchberg Campus
6, Rue Richard Coudenhove-Kalergi Main Building
Room D10F
1359 Kirchberg
This event is Supported by the Luxembourg National Research Fund (2022/17573036)