Debt renegotiation and entrepreneurial optimism
This paper studies the effect of entrepreneurial optimism on the renegotiation procedure outcome in the case of financially distressed companies. We model a three actor renegotiation procedure whit a realistic bank, an optimistic entrepreneur and a trade supplier (who is an optimistic entrepreneur himself). We show that optimism enables a renegotiation procedure even when immediate liquidation is socially optimal. We also show that realistic actors (banks) can exploit the divergence in beliefs with optimistic entrepreneurs in order to obtain premature repayment, while optimistic trade suppliers support the company since they believe that the project has great chances to succeed. Hence, we explain by this idea some empirical evidence over private renegotiation results and player's behavior.
|Date of creation:||11 May 2011|
|Date of revision:|
|Publication status:||Published in 28th International Conference of French Finance Association, May 2011, Montpellier, France|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00591059|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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