SMU SOE Seminar Series (March 28, 2024): Credit Horizons

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TOPIC:

CREDIT HORIZONS

ABSTRACT Entrepreneurs appear to raise funds largely against their near-term revenues, even when their investment has a longer horizon. To explain why, we develop a model of funding horizons in which the inalienable human capital of an entrepreneur-cum-engineer is essential for constructing and then maintaining a production plant. The further distant into the future, the larger the fraction of the revenue flow that can be attributed to the engineer's cumulative maintenance. Looking ahead from the time of investment, we see that because the engineer cannot pre-commit to work for less than her marginal contribution to (future) production, as time passes more of the surplus goes (has effectively already gone) to her -- and concomitantly less goes to financial claimants. Hence the investing engineer's fundraising capacity is largely governed by revenues in the near horizon. We use our framework to examine how credit horizons interact with plant dynamics and the evolution of productivity. We also show that a permanent fall in the interest rate in small open economy can lead to a temporary boom followed by slower growth in the long run. JEL Codes: E44 Click here to view the CV. Click here to view the paper.
		PRESENTER Nobuhiro Kiyotaki Princeton University
		RESEARCH FIELDS Macroeconomics Financial Economics
		DATE: 28 March 2024 (Thursday)
		TIME: 4pm - 5.30pm
		VENUE: Seminar Room 4.1, Level 4 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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