MULTIPLE BANKING AS A COMMITMENT NOT TO RESCUE
ISBN: 978-0-76231-161-3, eISBN: 978-1-84950-313-6
Publication date: 24 March 2005
Abstract
We show why investors may prefer not to be a firm’s unique lender, even if they are in a strong bargaining position. Some firms need additional funds after a first investment: providing additional funds is rational after the first investment is sunk, but together the two investments are unprofitable. A unique lender will always provide additional funds and make losses. Two creditors can commit not always to provide funds: inefficient negotiations over debt forgiveness may end with a project’s liquidation, which is harmful ex post, but helpful ex ante, if it keeps entrepreneurs with nonpromising projects from initially requesting funds.
Citation
Povel, P. (2005), "MULTIPLE BANKING AS A COMMITMENT NOT TO RESCUE", Research in Finance (Research in Finance, Vol. 21), Emerald Group Publishing Limited, Leeds, pp. 175-199. https://doi.org/10.1016/S0196-3821(04)21008-5
Publisher
:Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited