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Some models of loan default are binary, simply modelling the probability of default, while others go further and model the extent of default (eg number of outstanding payments; amount of arrears). The double-hurdle model, originally due to Cragg (Econometrica, 1971), and conventionally applied to household consumption or labour supply decisions, contains two equations, one which determines whether or not a customer is a potential defaulter (the 'first hurdle'), and the other which determines the extent of default. In separating these two processes, the model recognizes that there exists a subset of the observed non-defaulters who would never default whatever their circumstances. A Box-Cox transformation applied to the dependent variable is a useful generalization to the model. Estimation is relatively easy using the Maximum Likelihood routine available in STATA. The model is applied to a sample of 2515 loan applicants for whom loans were approved, a sizeable proportion of whom defaulted in varying degrees. The dependent variables used are amount in arrears and number of days in arrears. The value of the hurdle approach is confirmed by finding that certain key explanatory variables have very different effects between the two equations. Most notably, the effect of loan amount is strongly positive on arrears, while being U-shaped on the probability of default. The former effect is seriously under-estimated when the first hurdle is ignored. Journal of the Operational Research Society (2005) 56, 1063-1071. doi:10.1057/palgrave.jors.2601922 Published online 12 January 2005 Keywords: double hurdle model; credit scoring; loan default

Debtor-in-possession financing following Chapter 11 bankruptcy is found to elevate return on equity, reduce time spent in bankruptcy, and decrease the probability of liquidation.

An overview is presented on the Keynesian identification of the loanable funds fallacy, focusing on liquidity preference and the liquidity theory of interest. Topics include John Maynard Keynes' 'Treatise on Money', rises in thrift, money and output adjustments, and equilibrium analysis.

This paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth. The monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders. The model is used to analyze the different strands of the credit view of the transmission of monetary policy. In particular, we derive the empirical implications of a broad credit channel, and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel.

Credit scoring systems are based on Operational Research and statistical models which seek to identify who of previous borrowers did or did not default on loans. This study looks at the question when will borrowers default not if they will default. It suggests that some of the reliability modelling approaches may be useful in this context and may help identify who will default as well as when they may default.

The availability of credit in the Italian high technology sector is one of the limiting factors that determines their R&D expenditure to cash flow. The limited availability of credit for high-tech firms stems from high risk perceptions of lenders on the projects. The limited credit availability is especially affecting the performance of innovative firms, which must engage in high risk-high return projects to maintain market share.

Analysis of the link between monetary policy and bank lending through an extended version of a model developed by Bernanke and Blinder that incorporates commercial paper in the lending process attests to the soundness of the direct relationship assumption between the two variables. However, stability tests did not indicate a consistency in the relationship for some years between 1973 and 1994.

An equilibrium model of financial intermediation with loan commitments is presented and used in the examination of the welfare consequences of alternative monetary policies. It is considered that if demand uncertainty is associated to the number of borrowers rather than to the individuals' demand for credit, an interest-rate smoothing policy is optimal. This is because efficiency decreases when loan commitments are negotiated in advance, with the use of 'tight money' resulting in asymmetric effects on different categories of borrowers.

A model that illustrates the fact that banks are the center of the financial sector and are the main source of external financing for corporations and small companies in Paraguay is presented. Bank loans affect the long-run growth of the economy in this model through the changes in the probability of loans repayment and other risks.

This paper compares two different models in a common environment. The first model has liquidity constraints in that consumers save a single asset that they cannot sell short. The second model has debt constraints in that consumers cannot borrow so much that they would want to default, but is otherwise a standard complete markets model. Both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates. In a stochastic environment, the two models have quite different dynamic properties, with the debt constrained model exhibiting simple stochastic steady states, while the liquidity constrained model has greater persistence of shocks. KEYWORDS: Collateral, contract enforcement, debt constraint, incomplete markets, liquidity constraint, participation constraint.

Agents expect to trade with each other infinitely often, but face a temporal absence of a coincidence of wants when they meet. Only loans and/or money can facilitate exchange. In small close-knit economies, enduring trade relationships are valued and loans are optimal. In larger economies, with limited communication, information concerning repayment of loans diffuses too slowly to deter agents from reneging unless loans are severely restricted in magnitude. Money has no such redeemability problems, but if Clower constraints bind, loans help supplement money purchases so that both become essential. Roles of various institutions and the historical evolution of media of exchange are explained.

Oakford & Thuesen's maximum prospective value and Weingartner's basic horizon model extended to include long-term decisions. Conceptual logic based on interviews with executives. Mathematical programming format.