Title: On the sequencing of projects, reputation building, and relationship finance
Authors : Egli, Dominik
Ongena, Steven
Smith, David C.
Published in : Finance Research Letters
Volume(Issue) : 3
Issue : 1
Pages : 23
Pages to: 39
Publisher / Ed. Institution : Elsevier
Issue Date: Mar-2006
License (according to publishing contract) : Licence according to publishing contract
Type of review: Peer review (Abstract)
Language : English
Subjects : Relationship financing; Contract enforcement; Judicial efficiency; Reputation building; Staged financing
Subject (DDC) : 658.1: Organization and finance
Abstract: We study the decision an entrepreneur faces in financing multiple projects and show that relationship financing will arise endogenously in an environment where strategic defaults are likely, even when firms have access to arm's-length financing. Relationship financing allows an entrepreneur to build a private reputation for repayment that reduces the cost of financing. However, in an environment where the risk of strategic default is low, the benefits from reputation building are outweighed by holdup rents extractable by the incumbent lender. Entrepreneurs then choose to finance projects from single or multiple, arm's-length lenders. We relate these findings to studies that positively associate accounting standards, creditor rights, and legal enforcement with economic growth.
Departement: School of Management and Law
Publication type: Article in scientific Journal
DOI : 10.1016/j.frl.2005.08.005
ISSN: 1544-6123
URI: https://digitalcollection.zhaw.ch/handle/11475/12699
Appears in Collections:Publikationen School of Management and Law

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