TEL  Vol.3 No.2 , April 2013
The Impact of Bank Health on Coordination among Creditors
Author(s) Kenta Toyofuku*
ABSTRACT

We investigate how the health of a relationship bank impacts upon coordination among creditors and how it affects the firms behavior. We show that if the relationship bank is healthy, creditors coordinate each other and the firm takes an efficient action but if it becomes financially distressed, a coordination problem arises ex post and the inefficient liquidation of the firms projects may occur. This coordination failure, in turn, increases the interest payments ex ante so that the firm is more likely to choose an inefficient action.


Cite this paper
K. Toyofuku, "The Impact of Bank Health on Coordination among Creditors," Theoretical Economics Letters, Vol. 3 No. 2, 2013, pp. 108-118. doi: 10.4236/tel.2013.32018.
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