A Dynamic Theory of Debt Restructuring

Hisashi Nakamura
Additional contact information
Hisashi Nakamura: Faculty of Economics, University of Tokyo

No CARF-F-072, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper studies a strategic role of debt restructuring under an optimal debt contract. It explores an infinite-horizon costly-monitoring model under Markov income shocks. It shows that, if (1) a borrower's project is expected to be profitable, (2) a lender's outside options are positively correlated with the borrower's project, and (3) disclosure costs are a medium level, then restructuring is preferred to termination of contract in default under an optimal contract. This optimal contract is implementable in a debt contract that permits debt restructuring. This paper also provides insights into autarkic financing features of the world's poorest economies.

Pages: 31 pages
Date: 2006-08
References: Add references at CitEc
Citations: View citations in EconPapers (4)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf072

Access Statistics for this paper

More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by ().