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Debt Rescheduling with Multiple Lenders: Relying on the Information of Others

Claude Fluet () and Paolo Garella ()

Cahiers de recherche from CIRPEE

Abstract: Can debt rescheduling decisions differ in multiple lenders’ versus a single lender loan? Do multiple lenders efficiently react to information? We show that the precision of information plays an essential role. Foreclosing by one lender is disruptive so that a lender can rationally wait for the decision of other lenders, rescheduling her loan, if she expects that other lenders receive more precise information. We develop a Bayesian game where signals of different precision are randomly distributed to lenders. Both, premature liquidation and excessive rescheduling are possible in equilibrium, according to the pattern of information. However this is a second-best outcome, given that private information cannot be optimally shared.

Keywords: Overlending; debt contracts; insolvency; illiquidity; liquidation; relationship lending; multiple lenders; Bayesian games (search for similar items in EconPapers)
JEL-codes: G32 G33 D82 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cta and nep-mic
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
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Journal Article: Debt Rescheduling with Multiple Lenders: Relying on the Information of Others (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1332

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