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Signalling Effects of a Large Player in a Global Game of Creditor Coordination

Author

Listed:
  • Manfred Stadler

    (University of Tuebingen)

  • Tobias Schuele

    (University of Tuebingen)

Abstract

In case of multiple creditors a coordination problem can arise when the borrowing firm runs into financial distress. Even if the project's value at maturity is enough to pay all creditors in full, some creditors may be tempted to foreclose on their loans. We develop a model of creditor coordination where a large creditor moves before a continuum of small creditors, and analyze the signalling effects of the large creditor''s investment decision on the subsequent behavior of the small creditors. The signalling effects crucially depend on the relative size of the large creditor and the relative precision of information. We derive conditions under which pure herding behavior is to be expected.

Suggested Citation

  • Manfred Stadler & Tobias Schuele, 2005. "Signalling Effects of a Large Player in a Global Game of Creditor Coordination," Economics Bulletin, AccessEcon, vol. 4(12), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-05d80042
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    References listed on IDEAS

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    1. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2004. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 87-113.
    2. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    3. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
    4. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    5. Koichi Takeda, 2003. "The Influence of Large Creditors on Creditor Coordination," Economics Bulletin, AccessEcon, vol. 7(6), pages 1-11.
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    Cited by:

    1. J. Brandes & Tobias Schüle, 2008. "IMF’s assistance: Devil’s kiss or guardian angel?," Journal of Economics, Springer, vol. 94(1), pages 63-86, June.

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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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