F&S Seminar Series
Oct 13, 2011
from 10:30 AM to 12:00 PM
|Where||Room W2.01, CJBS|
|Contact Name||Bang Dang Nguyen|
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Robert Marquez (BU) will present his paper 'Specialization, Productivity and Financing Constraints'
Co-authored with Deniz Yavuz (Purdue University)
We analyze financial contracting when the specificity of investments is endogenous. Specialization decreases the liquidation value of assets, but it also improves the firm’s long term productivity. While the first effect is known to make financing more difficult we show that the second effect can ease financing constraints by improving an entrepreneur’s incentive to pay. An entrepreneur’s inability to commit to a given level of specialization introduces inefficiencies and may result in over or under specialization depending on which of the above effects dominates. The trade off we identify persists across various forms of specialized investments, the possibility of renegotiation, the ability to invest in stages, and generates new predictions.