Asset Measurement in Imperfect Credit Markets

Authors

• Jeremy Bertomeu, Baruch College CUNYFollow
• Edwige Cheynel, Columbia University

ORCID

Jeremy Bertomeu, https://orcid.org/0000-0001-6746-5767

Language

English (en)

Publication Date

2015

Abstract

How should a firm measure a productive asset used as collatera l in a credit agree- ment? To answer this question, we develop a model in which firm s borrow funds subject to collateral constraints. We characterize the qua lities of optimal asset mea- surements and analyze their interactions with financing nee ds, collateral constraints, and interest rates. Because of real effects, complete trans parency would reduce con- tracting efficiency and, hence, the measurement must be suit ably adapted to credit conditions. The optimal measurement is asymmetric and repo rts precise information about high collateral values if credit frictions are low, bu t the reverse if credit frictions are high. Tighter credit market conditions may lead to more o paque measurements and increased investment, in the form of inefficient continu ations.

Document Type

Working Paper

DOI

https://doi.org/10.7936/q2pb-r794

Author's Department

Accounting

Author's School

Olin Business School

Recommended Citation

Bertomeu, Jeremy and Cheynel, Edwige, "Asset Measurement in Imperfect Credit Markets" (2015). Olin Business School Faculty Research. 13.
https://openscholarship.wustl.edu/business_facpubs/13