Severe or gentle bankruptcy law: Which impact on investing and financing decisions?

Régis Blazy, Bruno Deffains, Gisèle Umbhauer and Laurent Weill

Economic Modelling, 2013, vol. 34, issue C, 129-144

Abstract: This research investigates how legal sanctions prevailing under bankruptcy may impact on debt contracting and on investing decision. We model firms having the opportunity to engage (or not) faulty management. In case of default, the firms may escape costly bankruptcy by reaching a private agreement with the bank. We show that such renegotiation process may depend on the level of severity of bankruptcy law.

Keywords: Corporate bankruptcy; Credit lending; Interest rate; Moral hazard; Legal sanctions (search for similar items in EconPapers)
JEL-codes: D21 D82 G33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:34:y:2013:i:c:p:129-144

DOI: 10.1016/j.econmod.2013.02.001

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