Strategic managerial dishonesty and financial distress
AbstractThis paper analyzes the effect of stricter sanctions against fraudulent disclosure in an economy where commercial lenders have only an imperfect information about the type of the firm they trade with. In the hybrid Bayesian equilibrium, some managers running fragile firms claim that their firm is solid only to benefit of better commercial credit terms. The default premium charged by the supplier over the normal cost can be interpreted here as an indirect bankruptcy cost. When the sanction gets heavier, both the default premium and the frequency of defaulting firms go up. Under given circumstances, these perverse effects might be offset by a decline in direct bankruptcy costs.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 63 (2009)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/inca/622941
Financial distress Bankruptcy costs Disclosure Corporate regulation Hybrid Bayesian equilibrium;
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