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Severe or gentle bankruptcy law: Which impact on investing and financing decisions?

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  • Blazy, Régis
  • Deffains, Bruno
  • Umbhauer, Gisèle
  • Weill, Laurent

Abstract

This research investigates how legal sanctions prevailing under bankruptcy may impact on debt contracting and on investing decision. We model firms having the opportunity to engage (or not) faulty management. In case of default, the firms may escape costly bankruptcy by reaching a private agreement with the bank. We show that such renegotiation process may depend on the level of severity of bankruptcy law.

Suggested Citation

  • Blazy, Régis & Deffains, Bruno & Umbhauer, Gisèle & Weill, Laurent, 2013. "Severe or gentle bankruptcy law: Which impact on investing and financing decisions?," Economic Modelling, Elsevier, vol. 34(C), pages 129-144.
  • Handle: RePEc:eee:ecmode:v:34:y:2013:i:c:p:129-144
    DOI: 10.1016/j.econmod.2013.02.001
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecmode:v:69:y:2018:i:c:p:13-25 is not listed on IDEAS
    2. Régis BLAZY & Nirjhar NIGAM, 2018. "Corporate insolvency procedures in England: The uneasy case for liquidations," Working Papers of LaRGE Research Center 2018-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    3. Godlewski, Christophe J., 2015. "The dynamics of bank debt renegotiation in Europe: A survival analysis approach," Economic Modelling, Elsevier, vol. 49(C), pages 19-31.
    4. de La Bruslerie, Hubert, 2016. "Does debt curb controlling shareholders' private benefits? Modelling in a contingent claim framework," Economic Modelling, Elsevier, vol. 58(C), pages 263-282.
    5. repec:kap:ejlwec:v:47:y:2019:i:1:d:10.1007_s10657-018-9599-2 is not listed on IDEAS

    More about this item

    Keywords

    Corporate bankruptcy; Credit lending; Interest rate; Moral hazard; Legal sanctions;

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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