The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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DISCUSSION
Published: 07/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb03666.x
RICHARD J. HERRING
Credit Rationing and Financial Disorder
Published: 12/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb04912.x
JACK GUTTENTAG, RICHARD HERRING
We develop a model of lender behavior in the presence of default risk and moral hazard that determines default premiums and identifies the conditions under which borrowers are rationed. A hypothesis regarding a cognitive bias in the formation of expectations provides a dynamic component to our analysis and allows us to explain how an economy becomes vulnerable to a financial crisis and why vulnerability may increase over time.
Growth Opportunities and Risk‐Taking by Financial Intermediaries
Published: 07/01/1987 | DOI: 10.1111/j.1540-6261.1987.tb04570.x
RICHARD J. HERRING, PRASHANT VANKUDRE
We show that growth opportunities which cannot be converted to cash under conditions of financial distress (Gz) are a critical determinant of an intermediary's choice of risk. Financial institutions in which Gz is a low proportion of total assets will be much more likely to engage in go‐for‐broke behavior. The model leads to a reevaluation of the effectiveness of several traditional remedies for dealing with banks that take excessive risks such as raising insurance premiums, intervening before capital is depleted, and restricting investment options. The model also has implications about a new approach to the examination of financial intermediaries.