Is there a paradox of pledgeability?

Dan Bernhardt, Kostas Koufopoulos and Giulio Trigilia
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Kostas Koufopoulos: University of York
Giulio Trigilia: University of Rochester

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Donaldson, Gromb and Piacentino (2019) suggest that, in the presence of limited commitment, increasing the fraction of a firm’s cash flows that can be pledged as collateral might make the firm worse off. We show that, in fact, firms can never be hurt by increased pledgeability of cash flows in their framework. We then show that the first best can always be implemented by non-state contingent collateralized debt contracts that differ from the ones they consider.

Keywords: Collateral; Secured debt; Pledgeability (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 G38 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban and nep-cfn
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https://warwick.ac.uk/fac/soc/economics/research/w ... 1237_-_bernhardt.pdf

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Journal Article: Is there a paradox of pledgeability? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1237

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