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.
|Original language||English (US)|
|Number of pages||43|
|Journal||Review of Financial Studies|
|State||Published - Dec 1 2010|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics