Dollars Dollars Everywhere, Nor Any Dime to Lend: Credit Limit Constraints on Financial Sector Absorptive Capacity

Asim Ijaz Khwaja; Atif Mian; Bilal Zia

doi:10.1093/rfs/hhq091

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Dollars Dollars Everywhere, Nor Any Dime to Lend: Credit Limit Constraints on Financial Sector Absorptive Capacity

Asim Ijaz Khwaja^1,2; Atif Mian³; Bilal Zia⁴

¹ Harvard University · ² John F. Kennedy University · ³ University of California, Berkeley · ⁴ World Bank

Review of Financial Studies 2010 open access

We exploit an unexpected inflow of liquidity in an emerging market to study how capital is intermediated to firms. We find that backward-looking credit limit constraints imposed by banks make it difficult for firms to borrow, despite readily available bank liquidity, healthy aggregate demand, and a sharply falling cost of capital. The resulting aggregate failure to extend and retain capital in the economy suggests that agency costs that force banks to rely on sticky balance-sheet-based credit limits prevent emerging economies from effectively intermediating capital.

DOI: 10.1093/rfs/hhq091
Volume: 23 (12)
Pages: 4281-4323
Language: en
Export: BibTeX
Sources: openalex crossref