Misallocation and Financial Market Frictions : Some Direct Evidence from the Dispersion in Borrowing Costs

@inproceedings{CEBlaneM2011MisallocationAF,
  title={Misallocation and Financial Market Frictions : Some Direct Evidence from the Dispersion in Borrowing Costs},
  author={D. C.E.BlaneM. and Simon G. Gilchrist and Jae Woong Sim and Egon Zakrajsek},
  year={2011}
}
Financial market frictions distort the allocation of resources among productive units—all else equal, firms whose financing choices are affected by financial frictions face higher borrowing costs than firms with ready access to capital markets. As a result, input choices may differ systematically across firms in ways that are unrelated to their productive efficiency. We propose a simple accounting framework that allows us to assess the empirical magnitude of the loss in aggregate resources due… CONTINUE READING
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