Debt renegotiation and entrepreneurial optimism

Ivana Vitanova ()
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Ivana Vitanova: COACTIS - COnception de l'ACTIon en Situation - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne

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Abstract: 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.

Keywords: optimism; debt renegotiation (search for similar items in EconPapers)
Date: 2011-05-11
New Economics Papers: this item is included in nep-ent
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00591059
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Published in 28th International Conference of French Finance Association, May 2011, Montpellier, France

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00591059

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