Creditor Coordination with Social Learning and Endogenous Timing of Credit Decisions

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URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-27244
http://hdl.handle.net/10900/47520
Dokumentart: ResearchPaper
Date: 2006
Source: Tübinger Diskussionsbeiträge der Wirtschaftswissenschaftlichen Fakultät ; 307
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Bankrott
Other Keywords:
Global Games , Creditor Coordination Failure , Option to Delay , Social Learning
License: Publishing license excluding print on demand
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Abstract:

In case of multiple source lending even solvent firms may be forced into bankruptcy due to uncoordinated credit withdrawals of their lenders. This paper analyzes whether a debtor firm can thwart such inefficient liquidations by offering creditors the option to delay their foreclosure decision rather than obliging them to simultaneous actions as suggested by Morris and Shin (2004). With this option, lenders can endogenously determine the timing of their credit decisions, trading off the informational benefit from waiting against the associated cost of delay. Our results state that the option to delay diminishes creditor coordination failure whenever the firm is expected to be in distress.

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