Tridib Sharma

... Santa Teresa 930 Mexico City 10700. ... For analytical tractability we pose these questions in a setting where both the client and the manager are risk neutral.1 In this framework, Heinkel and Stoughton's (1994) model shows that benchmarking is optimal (in the class of linear ...

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

ABSTRACT Mexico s initial industrialization was based on firms that were grouped : that is, linked to other firms through close affiliations with a common bank. Most explanations for the prevalence of groups are based on increasing returns or missing formal capital markets. We propose a simpler explanation that better fits the facts of Mexican history. In the absence of secure property rights, tangible collateral could not credibly be offered to creditors; but there remained the possibility of using reputation as a form of intangible collateral. In such circumstances, firms had incentives to group together for purposes of mutual monitoring and insurance.

Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the prevalence of sharecropping has remained an important issue. While most contributions have focussed only on output sharing, very few have studied the issue of cost sharing. Besides, the existing

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance.

... Timothy N. Cason · Tridib Sharma ... We are grateful for financial support provided by the Purdue University Faculty Scholar program and the Asociación Méxicana de Cultura, as well as for the valuable research assistance provided by Shakun Datta and Marikah Mancini. ...