If you need an accessible version of this item please contact JSTOR User Support

Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt

Douglas W. Diamond
Journal of Political Economy
Vol. 99, No. 4 (Aug., 1991), pp. 689-721
Stable URL: http://www.jstor.org/stable/2937777
Page Count: 33
  • Download PDF
  • Cite this Item

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support
Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt
Preview not available

Abstract

This paper determines when a debt contract will be monitored by lenders. This is the choice between borrowing directly (issuing a bond, without monitoring) and borrowing through a bank that monitors to alleviate moral hazard. This provides a theory of bank loan demand and of the role of monitoring in circumstances in which reputation effects are important. A key result is that borrowers with credit ratings toward the middle of the spectrum rely on bank loans, and in periods of high interest rates or low future profitability, higher-rated borrowers choose to borrow from banks.

Page Thumbnails

  • Thumbnail: Page 
689
    689
  • Thumbnail: Page 
690
    690
  • Thumbnail: Page 
691
    691
  • Thumbnail: Page 
692
    692
  • Thumbnail: Page 
693
    693
  • Thumbnail: Page 
694
    694
  • Thumbnail: Page 
695
    695
  • Thumbnail: Page 
696
    696
  • Thumbnail: Page 
697
    697
  • Thumbnail: Page 
698
    698
  • Thumbnail: Page 
699
    699
  • Thumbnail: Page 
700
    700
  • Thumbnail: Page 
701
    701
  • Thumbnail: Page 
702
    702
  • Thumbnail: Page 
703
    703
  • Thumbnail: Page 
704
    704
  • Thumbnail: Page 
705
    705
  • Thumbnail: Page 
706
    706
  • Thumbnail: Page 
707
    707
  • Thumbnail: Page 
708
    708
  • Thumbnail: Page 
709
    709
  • Thumbnail: Page 
710
    710
  • Thumbnail: Page 
711
    711
  • Thumbnail: Page 
712
    712
  • Thumbnail: Page 
713
    713
  • Thumbnail: Page 
714
    714
  • Thumbnail: Page 
715
    715
  • Thumbnail: Page 
716
    716
  • Thumbnail: Page 
717
    717
  • Thumbnail: Page 
718
    718
  • Thumbnail: Page 
719
    719
  • Thumbnail: Page 
720
    720
  • Thumbnail: Page 
721
    721