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

Are multiple-lender loans rescheduled more or less often than single-lender loans? Do multiple lenders react efficiently to new information? Our analysis emphasizes the role of the precision of information: lenders trade off benefits from immediate foreclosure against expected benefits of waiting fo...

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Bibliographic Details
Published in:Economica (London) 2014-10, Vol.81 (324), p.698-720
Main Authors: Fluet, Claude, Garella, Paolo G.
Format: Article
Language:English
Subjects:
Bank liquidity
Bank loans
Banks
Bayesian analysis
Bayesian method
Benefits
Creditors
Debt
Debt rescheduling
First mover advantage
Foreclosures
Game theory
Information analysis
Information management
Information sharing
Lenders
Lending institutions
Liquidation
Liquidity
Loans
Probability theory
Studies
Citations: Items that this one cites
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Summary:Are multiple-lender loans rescheduled more or less often than single-lender loans? Do multiple lenders react efficiently to new information? Our analysis emphasizes the role of the precision of information: lenders trade off benefits from immediate foreclosure against expected benefits of waiting for other lenders to act, given the likelihood that other lenders' information is more precise. We analyse a Bayesian game where signals distributed to lenders may differ in precision and content. Equilibria display excessive liquidation or excessive rescheduling, depending on the likelihood of information. Outcomes are nevertheless second-best, given the constraint that private information cannot be merged.
ISSN:0013-0427
1468-0335
DOI:10.1111/ecca.12099