Debt restructuring with multiple bank relationships

Angelo Baglioni, Luca Colombo and Paola Rossi

No 1191, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: When the debt of distressed firms is dispersed, free riding makes it difficult to reach a restructuring agreement. We develop a multistage game in which banks come across each other frequently, allowing them to threaten punishment in case of free riding. As the number of banks grows, the chance of re-encountering a bank and of being punished for free riding increases, improving the likelihood of cooperation. Looking at Italian firms in distress, we find that the restructuring probability increases with the number of banks up to a threshold - around three banks - beyond which coordination problems prevail.

Keywords: banks; debt restructuring; number of creditors (search for similar items in EconPapers)
JEL-codes: G21 G33 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-ban and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Debt restructuring with multiple bank relationships (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1191_18

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