Date: 08 May 2026, Friday
Time: 13.30 – 14.30
“Leveraging to Lend: A Theory of Lax Credit”
by
Igor Makarov
London School of Economics
This is an online seminar. To request event details please send a message to department.
Abstract
A pervasive feature of financial intermediation is the use of third-party deal-by-deal capital in addition to balance sheet capital to finance investment activity. This paper studies how third-party capital and decentralized fundraising jointly shape competition, screening, and welfare in intermediated credit markets. We show that third-party capital serves a novel economic function: it allows informed intermediaries to separate screening decisions from surplus sharing, thereby intensifying competition and reducing the cost of capital to firms. Yet it also amplifies a dynamic adverse selection externality, resulting in excessively lax screening and overinvestment. Consequently, although entrepreneurs benefit from intermediary third-party leverage, restricting third-party financing can raise social welfare.
Bio
Igor Makarov is Associate Professor of Finance at the London School of Economics. His research spans theoretical and empirical topics in capital markets, with particular emphasis on information economics, limits of arbitrage, and cryptocurrencies. His work has been published in leading academic journals, including the Journal of Finance, the Journal of Financial Economics, and the Review of Financial Studies. He serves as an Associate Editor at both the Journal of Finance and the Journal of Financial Economics.
Dr. Makarov has received several professional awards, including the 2012 NASDAQ OMX Award for his work on CDS auctions and second place in the 2007 Crowell Memorial Prize for his research on the sources of systematic risk. He holds an M.Sc. in Mathematics from Moscow State University, an M.A. in Economics from the New Economic School, and a Ph.D. in Finance from the MIT Sloan School of Management. In addition to his academic work, he has applied his expertise through industry consulting.