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Agency Costs and Investment Behaviour. ENEPRI Working Paper, No. 47, 3 February 2007

Dorofeenko, Viktor, and Lee, Gabriel S., and Salyer, Kevin D. (2007) Agency Costs and Investment Behaviour. ENEPRI Working Paper, No. 47, 3 February 2007. [Working Paper]

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    Abstract

    How do differences in the credit channel affect investment behavior in the U.S. and the Euro area? To analyze this question, we calibrate an agency cost model of business cycles. We focus on two key components of the lending channel, the default premium associated with bank loans and bankruptcy rates, to identify the differences in the U.S. and European financial sectors. Our results indicate that the differences in financial structures affect quantitatively the cyclical behavior in the two areas: the magnitude of the credit channel effects is amplified by the differences in the financial structures. We further demonstrate that the effects of minor differences in the credit market translate into large, persistent and asymmetric fluctuations in price of capital, bankruptcy rate and risk premium. The effects imply that the Euro Area's supply elasticities for capital are less elastic than the U.S.

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    Item Type: Working Paper
    Uncontrolled Keywords: Agency costs; credit channel; investment behavior.
    Subjects for non-EU documents: EU policies and themes > External relations > EU-US
    EU policies and themes > Policies & related activities > economic and financial affairs > general
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > ENEPRI Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 10 Feb 2008
    Page Range: p. 44
    Last Modified: 06 Apr 2012 13:03
    URI: http://aei.pitt.edu/id/eprint/7389

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