Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Microeconomics |
| Number of pages | 45 |
| Volume | 2009-86 |
| Publication status | Published - 2009 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2009-86 |
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Keywords
- Bankruptcy Law
- Financial Contracts
- Limited Commitment
- Soft budget con- straint
- Short-termism
Cite this
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Bankruptcy Law and Corporate Investment Decisions. / Tarantino, E.T.
Tilburg : Microeconomics, 2009. (CentER Discussion Paper; Vol. 2009-86).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Bankruptcy Law and Corporate Investment Decisions
AU - Tarantino, E.T.
N1 - Pagination: 45
PY - 2009
Y1 - 2009
N2 - This paper contributes to the debate on optimal bankruptcy reform by providing a set of results that challenge the wisdom that "soft" bankruptcy codes have necessarily positive effects. The model hinges on the key idea that "soft" bankruptcy allows a poor performing entrepreneur to renegotiate the terms of the initial contract with a lender. In the presence of moral hazard, the optimal arrangement requires the hampering of project's continuation as punishment for poor performance. However, if the lender can increase recovery rates in bankruptcy such pun- ishment is not renegotiation-proof. Clearly, this exacerbates the agency problem and creates a tension between ex-post and ex-ante effciency that may impede the implementation of long- term projects.
AB - This paper contributes to the debate on optimal bankruptcy reform by providing a set of results that challenge the wisdom that "soft" bankruptcy codes have necessarily positive effects. The model hinges on the key idea that "soft" bankruptcy allows a poor performing entrepreneur to renegotiate the terms of the initial contract with a lender. In the presence of moral hazard, the optimal arrangement requires the hampering of project's continuation as punishment for poor performance. However, if the lender can increase recovery rates in bankruptcy such pun- ishment is not renegotiation-proof. Clearly, this exacerbates the agency problem and creates a tension between ex-post and ex-ante effciency that may impede the implementation of long- term projects.
KW - Bankruptcy Law
KW - Financial Contracts
KW - Limited Commitment
KW - Soft budget con- straint
KW - Short-termism
M3 - Discussion paper
VL - 2009-86
T3 - CentER Discussion Paper
BT - Bankruptcy Law and Corporate Investment Decisions
PB - Microeconomics
CY - Tilburg
ER -