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Debt Rescheduling with Multiple Lenders: Relying on the Information of Others

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  • Claude Fluet
  • Paolo G. Garella

Abstract

Can debt rescheduling decisions differ in multiple lenders’ versus a single lender loan? Do multiple lenders efficiently react to information? We show that the precision of information plays an essential role. Foreclosing by one lender is disruptive so that a lender can rationally wait for the decision of other lenders, rescheduling her loan, if she expects that other lenders receive more precise information. We develop a Bayesian game where signals of different precision are randomly distributed to lenders. Both, premature liquidation and excessive rescheduling are possible in equilibrium, according to the pattern of information. However this is a second-best outcome, given that private information cannot be optimally shared.

Suggested Citation

  • Claude Fluet & Paolo G. Garella, 2013. "Debt Rescheduling with Multiple Lenders: Relying on the Information of Others," Cahiers de recherche 1332, CIRPEE.
  • Handle: RePEc:lvl:lacicr:1332
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    References listed on IDEAS

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    Cited by:

    1. Vigneron, Ludovic, 2014. "Relations bancaires et crédits aux PME
      [Banking Relationships and SMEs'bank debts]
      ," MPRA Paper 53014, University Library of Munich, Germany.
    2. Ludovic Vigneron & Ramzi Benkraiem, 2016. "Does banking relationship configuration affect the risk-taking behavior of French SMEs?," Economics and Business Letters, Oviedo University Press, vol. 4(4), pages 166-174.

    More about this item

    Keywords

    Overlending; debt contracts; insolvency; illiquidity; liquidation; relationship lending; multiple lenders; Bayesian games;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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