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Signalling effects of a large player in a global game of creditor coordination

Author

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  • Schüle, Tobias
  • Stadler, Manfred

Abstract

In case of multiple creditors a coordination problem can arise when the borrowingfirm runs into financial distress. Even if the project's value at maturity is enoughto pay all creditors in full, some creditors may be tempted to foreclose on theirloans. We develop a model of creditor coordination where a large creditor movesbefore a continuum of small creditors, and analyze the signalling effects of the largecreditor's investment decision on the subsequent behavior of the small creditors. Thesignalling effects crucially depend on the relative size of the large creditor and therelative precision of information. We derive conditions under which pure herdingbehavior is to be expected.

Suggested Citation

  • Schüle, Tobias & Stadler, Manfred, 2005. "Signalling effects of a large player in a global game of creditor coordination," Tübinger Diskussionsbeiträge 295, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:295
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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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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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