A. B. Araoz, H. B. Malmgren; Congestion and Idle Capacity in an Economy1, The Review of Economic Studies, Volume 28, Issue 3, 1 June 1961, Pages 202–211, h

I demonstrate that ratings-based capital rules, including both the current Basel Accord and its proposed revision, can be reconciled with the general class of credit value-at-risk models. Each exposure's contribution to VaR is portfolio-invariant only if (a) dependence across exposures is driven by a single systematic risk factor, and (b) no exposure accounts for more than an arbitrarily small share of total portfolio exposure. Analysis of rates of convergence to asymptotic VaR leads to a simple and accurate portfolio-level add-on charge for undiversified idiosyncratic risk. There is no similarly simple way to address violation of the single factor assumption.

This paper illustrates how non-contractual legal rules sometimes alleviate contractual incompleteness. A serious incompleteness in debt contracts is the borrower's ability to fraudulently transfer assets to third parties, rendering the borrower insolvent. The incompleteness arises because contractual remedies are ineffective against third-party transferees who are not bound by the debt contract, while the borrower has no assets to recover. Fraudulent conveyance law is a non-contractual legal rule allowing recovery against these transferees. This increases debt capacity most dramatically for borrowers with highly liquid assets. Without non-contractual legal rules, high liquidation value implies low debt capacity. Journal of Economic Literature Classification Numbers: G32; G38.

Auditing, Auditor change, Auditor change disclosure, Delayed hiring

Interim reporting, OTC firms, Market efficiency

Disclosures, Line-of-business reporting, Segment reporting, Portfolio returns

Risk measures, Market-determined risk, Accounting-determined risk, Association study

Bankruptcy, Discriminant analysis, Financial ratios, Business failure