Effects Of Bank Insolvency And Strategic Uncertainty On Corporate Restructuring In Transition Economies

Topics:
Corporate Restructuring
Tags:
Bank,
Corporate Restructuring,
Financial Services,
Restructuring
Source:
Regents of the University of Michigan

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Overview: This article studies the influence of bank insolvency on corporate restructuring in a dynamic model of bank relationship. Using a poorly developed banking technology, the model shows that bank insolvency can have a positive effect on firm’s incentives to restructure. Due to the technology, each firm faces strategic uncertainty on the restructuring decisions of other firms. Restructuring has positive externalities on restructuring incentives of other firms, which may cause multiple equilibiria where either all firms of a generation restructure, or no firm restructures. The optimal extent of coordination depends on the restructuring costs.

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Format: PDF | Size: 462KB | Date: Aug 2001 | Pages: 38

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