Predation Due to Bargaining Power Difference in Financial Contracting

Kwok Ho Chan, KaWai Terence Fung () and Zhou Lu ()
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KaWai Terence Fung: United International College, Beijing Normal University - Hong Kong Baptist University, Zhuhai, China
Zhou Lu: School of Management, New York Institute of Technology, USA

Economic Research Guardian, 2015, vol. 5, issue 2, 121-132

Abstract: Previous literature presented a predation model based on agency problems in financial contracting. In that model, predation reduced prey’s cash flow through breaking the relationship between the prey and its investors as the prey is financially constrained. This paper presents a different model in which both the predator and the prey are financially constrained and in need of external funding. The only dissimilarity between the predator and the prey is their corresponding level of bargaining power in financial contracting over their respective investors. The asymmetry of bargaining power is the unique source of predatory behavior. Financial contract between firm with less bargaining power (prey) and its investor can deter predation if the predator cannot renegotiate the contract with its own investor. If renegotiation is available for the predator, no financial contract can successfully deter predation.

Keywords: Predation; Long-purse; Signal-jamming; Financial Contracts; Bargaining Power (search for similar items in EconPapers)
JEL-codes: D82 G32 L12 L14 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Predation Due to Bargaining Power Difference in Financial Contracting (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wei:journl:v:5:y:2015:i:2:p:121-132

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