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Debt restructuring with multiple bank relationships

Angelo Baglioni (), Luca Colombo () and Paola Rossi ()

No def077, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: When the debt of firms in distress is dispersed, a restructuring agreement is difficult to reach because of free riding. We develop a repeated game in which banks come across each other frequently, allowing them to threaten a punishment in case of free riding. As the number of lending banks grows, the chance of meeting again 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 - 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)
Pages: 58
Date: 2019-01
New Economics Papers: this item is included in nep-ban
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