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Effects of Bank Insolvency and Strategic Uncertainty on Corporate Restructuring in Transition Economies

Author

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  • Christa Hainz

Abstract

We study the influence of bank insolvency on corporate restructuring in a dynamic model of bank relationship. Using a poorly developed banking technology our model shows that bank insolvency can have a positive effect on firms' incentives to restructure. Due to the technology each firm faces strategic uncertainty on the restructuring decision of other firms. Restructuring has the positive externalities on restructuring incentives of other firms which may cause multiple equilibria where either all firms of a generation restructure or no firm restructures. Coordination problems can exist in each period. The optimal extent of coordination policy depends on the restructuring costs.

Suggested Citation

  • Christa Hainz, 2001. "Effects of Bank Insolvency and Strategic Uncertainty on Corporate Restructuring in Transition Economies," William Davidson Institute Working Papers Series 390, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2001-390
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39774/3/wp390.pdf
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    Cited by:

    1. Pyle, William, 2002. "Overbanked and Credit-Starved: A Paradox of the Transition," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 25-50, March.

    More about this item

    Keywords

    transition economies; corporate finance; corporate governance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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