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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 63 (2009)
Issue (Month): 1 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622941
Financial distress Bankruptcy costs Disclosure Corporate regulation Hybrid Bayesian equilibrium;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gregor Andrade & Steven N. Kaplan, 1997.
"How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed,"
NBER Working Papers
6145, National Bureau of Economic Research, Inc.
- Gregor Andrade & Steven N. Kaplan, 1998. "How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," Journal of Finance, American Finance Association, vol. 53(5), pages 1443-1493, October.
- Morris, Stephen & Shin, Hyun Song, 2004.
"Coordination risk and the price of debt,"
European Economic Review,
Elsevier, vol. 48(1), pages 133-153, February.
- Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
- Stephen Morris & Hyun Song Shin, 1999. "Coordination Risk and the Price of Debt," Cowles Foundation Discussion Papers 1241, Cowles Foundation for Research in Economics, Yale University.
- Stephen Morris & Hyun Song Shin, 2001. "Coordination risk and the price of debt," LSE Research Online Documents on Economics 25046, London School of Economics and Political Science, LSE Library.
- Stephen Morris & Hyun Song Shin, 1999. "Coordination Risk and the Price of Debt," Cowles Foundation Discussion Papers 1241R, Cowles Foundation for Research in Economics, Yale University, revised Feb 2002.
- Baruch Lev, 2003. "Corporate Earnings: Facts and Fiction," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 27-50, Spring.
- Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-89, September.
- Joel S. Demski, 2003. "Corporate Conflicts of Interest," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 51-72, Spring.
- Besancenot, Damien & Vranceanu, Radu, 2007. "Equilibrium (dis)honesty," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 232-249, October.
- Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, 06.
- Zhang, Ivy Xiying, 2005. "Economic Consequences of the Sarbanes-Oxley Act of 2002," Working paper 175, Regulation2point0.
- Wruck, Karen Hopper, 1990. "Financial distress, reorganization, and organizational efficiency," Journal of Financial Economics, Elsevier, vol. 27(2), pages 419-444, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.